Volatility Smile
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High Quality Content by WIKIPEDIA articles! In finance, the volatility smile is a long-observed pattern in which at-the-money options tend to have lower implied volatilities than in- or out-of-the-money options. The pattern displays different characteristics for different markets and results from the probability of extreme moves. Equity options traded in American markets did not show a volatility smile before the Crash of 1987 but began showing one afterwards.Modelling the volatility smile is an active area of research in quantitative finance. Typically, a quantitative analyst will calculate t...
High Quality Content by WIKIPEDIA articles! In finance, the volatility smile is a long-observed pattern in which at-the-money options tend to have lower implied volatilities than in- or out-of-the-money options. The pattern displays different characteristics for different markets and results from the probability of extreme moves. Equity options traded in American markets did not show a volatility smile before the Crash of 1987 but began showing one afterwards.Modelling the volatility smile is an active area of research in quantitative finance. Typically, a quantitative analyst will calculate the implied volatility from liquid vanilla options and use models of the smile to calculate the price of more exotic options.
