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"why was the smile ever a thing" There are periods where there's a 'spot up, vol up' regime, as recently seen in SPX and NDX. Likely true for NASDAQ/tech stocks in the late '90s and in 2012/2013 for NKY. Latter is easier to check as Bloomberg and other vendors probably have data for that period.


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It's probably important that we're talking about IV of an index. From "Volatility Trading" by Euan Sinclair: In equity indexes the skew will be more pronounced than in the individual stocks that make up the index. The volatility of an index, $σ$, is related to the volatility of the components, $σ_i$, by: $$σ^2=\sum_{i=1}^N w_i^2 σ_i^2+2\sum_{i=1}^{...


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Nice question. My interpretation is via the concept of a risk premium (i.e. risk adversity of market participants). Let me introduce the concept of a risk premium first via US corporate bonds: one can observe that the credit spread of these bonds increases as the credit quality decreases. However when looking at actual historical realized defaults of ...


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The paper takes each observed smile, bumps all of the strikes by a shift term to make them positive, and the fits a SABR smile to them. When I do the same thing with the dataset you've attached above (I remove the -150 point because it's vol of 0.0 breaks things) I get the following 'smiley' fit, which looks similar to the results presented above: This was ...


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The standard way is to fit to a parametric curve and then sample the curve at the strike of interest. In order for call and put vols to match you need to have the correct forward. Finding the appropriate forward presents several challenges. For example, in the case of equity options market a) the underlier can be not in sync with the options' snapshot, b) ...


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