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- Q915788 subject Q7485053.
- Q915788 subject Q9049617.
- Q915788 abstract "Volatility smiles are implied volatility patterns that arise in pricing financial options. In particular for a given expiration, options whose strike price differs substantially from the underlying asset's price command higher prices (and thus implied volatilities) than what is suggested by standard option pricing models. These options are said to be either deep in-the-money or out-of-the-money.Graphing implied volatilities against strike prices for a given expiry yields a skewed "smile" instead of the expected flat surface. The pattern differs across various markets. Equity options traded in American markets did not show a volatility smile before the Crash of 1987 but began showing one afterwards. It is believed that investor reassessments of the probabilities of fat-tail have led to higher prices for out-the-money options. This anomaly implies deficiencies in the standard Black-Scholes option pricing model which assumes constant volatility and log-normal distributions of underlying asset returns. Empirical asset returns distributions, however, tend to exhibit fat-tails (kurtosis) and skew. Modelling the volatility smile is an active area of research in quantitative finance, and better pricing models such as the stochastic volatility model partially address this issue.A related concept is that of term structure of volatility, which describes how (implied) volatility differs for related options with different maturities. An implied volatility surface is a 3-D plot that plots volatility smile and term structure of volatility in a consolidated three-dimensional surface for all options on a given underlying asset.".
- Q915788 thumbnail Volatility_smile.svg?width=300.
- Q915788 wikiPageExternalLink papers.cfm?abstract_id=1965977.
- Q915788 wikiPageExternalLink gs-volatility_smile.pdf.
- Q915788 wikiPageExternalLink rpf232.pdf.
- Q915788 wikiPageExternalLink tokyo2002smile.pdf.
- Q915788 wikiPageExternalLink www.thevolatilityskew.com.
- Q915788 wikiPageWikiLink Q1018085.
- Q915788 wikiPageWikiLink Q1085860.
- Q915788 wikiPageWikiLink Q1183706.
- Q915788 wikiPageWikiLink Q1321169.
- Q915788 wikiPageWikiLink Q1338307.
- Q915788 wikiPageWikiLink Q1660345.
- Q915788 wikiPageWikiLink Q166656.
- Q915788 wikiPageWikiLink Q17134473.
- Q915788 wikiPageWikiLink Q1806850.
- Q915788 wikiPageWikiLink Q187860.
- Q915788 wikiPageWikiLink Q1929310.
- Q915788 wikiPageWikiLink Q194404.
- Q915788 wikiPageWikiLink Q2294553.
- Q915788 wikiPageWikiLink Q287251.
- Q915788 wikiPageWikiLink Q335632.
- Q915788 wikiPageWikiLink Q5256981.
- Q915788 wikiPageWikiLink Q5746554.
- Q915788 wikiPageWikiLink Q596307.
- Q915788 wikiPageWikiLink Q6497124.
- Q915788 wikiPageWikiLink Q6664586.
- Q915788 wikiPageWikiLink Q7388452.
- Q915788 wikiPageWikiLink Q7485053.
- Q915788 wikiPageWikiLink Q756115.
- Q915788 wikiPageWikiLink Q7915109.
- Q915788 wikiPageWikiLink Q868261.
- Q915788 wikiPageWikiLink Q9049617.
- Q915788 comment "Volatility smiles are implied volatility patterns that arise in pricing financial options. In particular for a given expiration, options whose strike price differs substantially from the underlying asset's price command higher prices (and thus implied volatilities) than what is suggested by standard option pricing models.".
- Q915788 label "Volatility smile".
- Q915788 depiction Volatility_smile.svg.