4 ms·
The vol smile is mostly a byproduct of greater demand for far OTM options to hedge tail risk, alongside more sellers for ATM options which depresses the middle
by vardaro 5y ago
The vol smile is mostly a byproduct of greater demand for far OTM options to hedge tail risk, alongside more sellers for ATM options which depresses the middle portion of the curve. I am not sure why this is a problem
- ivalm 5y agoIt's an example of how real life pricing deviates from Black-Scholes. At the same time the pricing is correct in a sense that tail risks are greater than would be expected from a random walk.