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Volatility skew
       
 
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Volatility skew

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Volatility skew
The difference in Implied volatility between Out-of-the-money puts and calls. In most Equity Option markets out-of-the money calls have lower Implied volatility than Out-of-the-money puts. This is mostly ascribed to the greater supply of Volatility above, rather than below, the money since fund managers are happy to write calls and not so happy to write puts. Volatility skews can be very pronounced in the Currency markets although whether puts or calls are favoured depends on market sentiment and demand and supply.

See also Implied volatility, Risk Reversal
Posted by  Privatebanking.com
 
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