Thursday, April 16, 2015

options - Constructing an approximation of the S&P 500 volatility smile with publicly available data



Besides of the VIX there is another vol datum publicly available for the S&P 500: the SKEW.


Do you know a procedure with which one can extrapolate other implied vols of the S&P 500 smile with these data (or with other publicly available vol data)?


Addendum:
I created a follow up question here.



Answer



There is a known expansion of implied volatility in moments (I'll find the reference)


IV=vol(1+skew6LMM+kurt24(LMM21))


where log-moneyness is


LMM=logstrikeforwardvolT.


Use VIX for vol.



If I remember correctly SKEW index is 100100skew, so skew=100SKEW100. Kurtosis is unknown, but you could try to use VVIX index and re-scale it in some way.


Or maybe another way would be to take the equation and regress for multipliers for VIX, VIX*SKEW, and VIX*VVIX using IV smile data.


No comments:

Post a Comment

technique - How credible is wikipedia?

I understand that this question relates more to wikipedia than it does writing but... If I was going to use wikipedia for a source for a res...