# Tag Info

Accepted

### Bergomi: Skew arbitrage

Great question. Let me try to provide some insights and thoughts regarding the points and questions you raised. It may not be a full answer but hopefully it will help connecting the contents in the ...
• 721
Accepted

• 2,426

### volatility skew for lognormal model is flat?

The answer is that by definition, if the underlying stock obeys a lognormal distribution with std deviation parameter sigma, then the implied vol of options priced using this model will be sigma. Of ...
• 14.1k

### Fitting Function for Skew

Why don't you just use SSVI (https://arxiv.org/abs/1204.0646) or maybe even eSSVI (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2971502)? With this parametric approaches an arbitrage free ...
• 248

### What is better: A negatively skewed return or a positively skewed returns distribution?

The usual answer is that most risk assets tend to exhibit left-skew, with correlations ->1 into the left tail (ie diversification breaks down). And so positively skewed assets have attractive ...
• 4,926

### Confusion with the equity option skew

It’s relatively more expensive compared to the BS price with flat volatility. The option premium of the 5% OTM put is higher than the 10% OTM put.
• 7,702

### Understanding skew of SPX - Why does IV of OTM puts increase with strike?

When I saw these curves they seemed very strange to me. I believe it is a data-quality issue.I went to Bloomberg and I retrieved the implied vols for 70 near ATM strikes of the weekly SPX options ...
• 9,107

### Why can't you arb skew by buying options with low implied vol and selling high implied vol in the same month and dynamically hedging?

It also depends on at what levels of the spot the higher vol gets realized. In your example: if you buy an option on a 40 vol expiring in a month and over the next month stock the average vol of ...
• 1,411

### Why can't you arb skew by buying options with low implied vol and selling high implied vol in the same month and dynamically hedging?

The market does not follow Black-Scholes assumptions, as you clearly know : there is a skew and vol levels change. Neither does it follow any other particular known model. So when you say "...
• 1,865

### How do I track implied volatility of specific delta?

Basically there are three steps to accomplish this. 1 - collect time series of options for several expirations and strikes. 2 - calculate implied volatility surface for every time period, and use ...
• 2,443

### Is there a popular curve fitting formula of options skew vs strike price or vs Delta?

In the public domain, there is SVI (stochastic volatility inspired) curve invented by Jim Gatheral. If you need curves which can fit very liquid names or handle W-shape curves (e.g. on earning), you ...

### Is there a popular curve fitting formula of options skew vs strike price or vs Delta?

In optimiazation system, you have to weight the price for the different maturities in a way that reflect your confidence in each data point (influenced by liquidity). One way to do so is to weight, ...
• 31

### What is the implied volatility skew?

Old and golden question, and maybe a new perspective: As the previous answers have pointed out, distinction needs to made between "skewness" and "skew". The former is the third ...
• 4,958

### Why vertical skew is same for puts and calls

put call parity guarantees that the implied volatility of a call and put with the same strike is the same. So the smile graph is the same as well and so are all quantities derived for it. In more ...
• 6,763

### Black Scholes - how to calculate delta with a vol skew

There's no best method. The question is : what is the behavior of the volatility structure (atm and skew) when the underlying moves? Each method assumes something different. In the real market, ...
• 14.1k
Accepted

### Spot and Vol Correlation in Idealised Regimes of the Volatility Surface

In black-scholes world, correlation between volatility and spot is zero. From the above details you can estimate how the implied volatility for a given option (note options have FIXED strikes) might ...
• 331
Accepted

### Vol skew and spot-vol correlation

Suppose you were to price 2 instruments: a strongly OTM put and a strongly OTM Call. In the standard BS settings, instantaneous volatility is assumed to be constant. Consequently, the implied ...
• 14k