Implied volatility surface
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چکیده
The widespread practice of quoting option prices in terms of their Black-Scholes implied volatilities (IVs) in no way implies that market participants believe underlying returns to be lognormal. On the contrary, the variation of IVs across option strike and term to maturity, which is widely referred to as the volatility surface, can be substantial. In this brief review, we highlight some empirical observations that are most relevant for the construction and validation of realistic models of the volatility surface for equity indices.
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