Put option volatility surface. The incorrectness of Black-Scholes is most obviously manifested through the volatility surface. This is a concept that is found also throughout derivatives markets. The volatility surface is constructed using market prices of European call and put options. Now they can also be constructed using American.

Put option volatility surface

Explaining Volatility Skew Using Options Strategies

Put option volatility surface. The incorrectness of Black-Scholes is most obviously manifested through the volatility surface. This is a concept that is found also throughout derivatives markets. The volatility surface is constructed using market prices of European call and put options. Now they can also be constructed using American.

Put option volatility surface


Volatility skew tells us that options with the same maturity at different strikes can have different implied vol. However, can a corresponding call and put for the same strike and maturity have different implied vol? In practice there are bid-ask spreads and liquidity issues which implies that observable prices of European options do no align necessarily to the theory.

For American options the standard options traded on Equity stocks we can still think in terms of implied volatility but there is no such thing as a put-call parity so implied volatilities are not necessarily equal anymore. There are some put-call parity style inequalities but those are not strong enough to guarantee the equality of volatilities.

Implied volatility does not have to be equal so yes, it can be different for a call and put of same underlying, underlying borrow rates, time to expiration, strike if:. In the absence of those such call and put should have matching implied volatility, under Put-Call parity.

Please keep in mind above conditions can be met much more often than most academic papers suggest. I can name you multiple examples for each above mentioned points that occurred just over the past 10 years that may have pushed the call and put implied vols significantly out of whack, sometimes for short periods of time, sometimes longer periods.

It is vol of underlying asset. Since only volatility induced to both of these comes from volatiity of the asset, I am sure it can be shown that this volatilty of asset must be the same for call and put.

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Join them; it only takes a minute: Here's how it works: Anybody can ask a question Anybody can answer The best answers are voted up and rise to the top. Does implied vol vary for calls vs puts? Franck Dernoncourt 2 FKaria 1 7. Implied volatility does not have to be equal so yes, it can be different for a call and put of same underlying, underlying borrow rates, time to expiration, strike if: If the underlying is a stock and the underlying cannot be easily borrowed for short selling If there are dividends or other costs of carry involved If there is not unlimited liquidity in the market In the absence of market turbulence.

Invoking put-call parity does not lead one to say that the "volatility of call What are you talking about? Why are you pinging me? I edited your answer; did you mean to ask William? Sign up or log in Sign up using Google. Sign up using Facebook. Sign up using Email and Password. Post as a guest Name. I do not follow your reasoning at all.


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