So, let me get back to science and even statistics about volatility, for your amusement and even edification.
If you look at S&P implied volatility over the last week or so, here is the well-known rule that seems to be holding:
1/n ...
If you look at S&P implied volatility over the last week or so, here is the well-known rule that seems to be holding:
1/n ...
…
Observe the at-the-money S&P implied volatility skew w.r.t strike each evening. Call it X vol points per S&P strike point.
Then, the night night, look at how much at-the-money implied volatility changed as the S&P level changed.
2/n ...
Observe the at-the-money S&P implied volatility skew w.r.t strike each evening. Call it X vol points per S&P strike point.
Then, the night night, look at how much at-the-money implied volatility changed as the S&P level changed.
2/n ...
… You will find that it changed by 1.5X vol pts per S&P point, pretty accurately. Sometimes maybe 1.6X.
In the local volatility model which I worked on 25 years ago, it should be 2X. If the skew were stationary as the market moved, it would be 1X. It’s somewhere in between.
3/4
In the local volatility model which I worked on 25 years ago, it should be 2X. If the skew were stationary as the market moved, it would be 1X. It’s somewhere in between.
3/4
This seems to hold for any expiration, at least between one month and one year, which is all I’ve checked.
Go figure!
4/4
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Go figure!
4/4
...
