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Ch17HullFundamentals6thEd

Ch17HullFundamentals6thEd - Volatility Smiles Chapter 17...

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Fundamentals of Futures and Options Markets , 6 th Edition, Copyright © John C. Hull 2007 17.1 Volatility Smiles Chapter 17
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Fundamentals of Futures and Options Markets , 6 th Edition, Copyright © John C. Hull 2007 17.2 Volatility Smile A volatility smile shows the variation of the implied volatility with the strike price The volatility smile is the same whether calculated from European call options or European put options. (This follows from put-call parity.)
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Fundamentals of Futures and Options Markets , 6 th Edition, Copyright © John C. Hull 2007 17.3 The Volatility Smile for Foreign Currency Options (Figure 17.1, page 380) Implied Volatility Strike Price
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Fundamentals of Futures and Options Markets , 6 th Edition, Copyright © John C. Hull 2007 17.4 Implied Distribution for Foreign Currency Options Lognormal Implied
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Fundamentals of Futures and Options Markets , 6 th Edition, Copyright © John C. Hull 2007 17.5 Properties of Implied Distribution for Foreign Currency Options Both tails are heavier than the lognormal distribution It is also “more peaked than the normal distribution
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