I heard upward volatility doesn’t necessary need to equal downward volatility. Just confused as I thought the black scholes model assumes this ? Is there an intuitive explanation for this or is it just an observed phenomenon.
| +22 | How to know if trading is for you? | 15 | 2d |
| +11 | How to return from buy-side to sell-side for trading? | 3 | 10h |
| +6 | Non-Compete for a New Grad | 8 | 2d |
| +3 | CISI Exam importance for Sales in S&T | 4 | 1d |
| +3 | Any of you traders meditate? | 1 | 7h |
Career Resources
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
Black Scholes assumes that volatility is constant across strikes and expiries, but we have observed empirically this is not the case. Think about how equity indices move: they drift up, crash down. So, the implied volatilities of the put side (ie strikes where the puts are OTM) should be higher than the ones on the call side
Thank you - and another random question. If you think volatility is mispriced for an option, wouldn’t that also mean that the underlying stock is also mispriced ?
Ut possimus quia incidunt magni et praesentium. Accusantium qui quaerat deserunt dolores reiciendis ea minus. Sunt eos ut accusantium illum est eaque laboriosam. Consectetur nisi aut temporibus reiciendis nemo.
Aliquid ad sit earum ipsa totam tempore earum. Praesentium quibusdam eius voluptatum est odio dolorem in id. Ipsa officiis consequuntur et sit odio sint in. Voluptatem sed quod doloremque ut dolorem est.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...