How Can a Market Maker Use a “Volatility Surface” to Manage Gamma Risk?

A market maker uses a volatility surface to price and manage the Gamma risk of their entire option book. The surface is a 3D plot of implied volatility across different strikes and maturities.

By observing the surface, the market maker can identify areas where Gamma is highest (steepest part of the surface) and adjust their hedging strategy, often by trading other options or using more sophisticated hedging instruments to neutralize the overall portfolio Gamma.