How Does the Volatility Surface Account for the ‘Volatility Skew’?
The volatility surface explicitly accounts for the volatility skew by plotting different implied volatility values for options with the same maturity but different strike prices. The skew is visible as the surface curves or slopes along the strike dimension.
This curvature is necessary to accurately price options across the entire range of possible outcomes.
Glossar
Volatility Surface
Calibration ⎊ The volatility surface, within cryptocurrency options, represents a three-dimensional depiction of implied volatility indexed by strike price and expiration date; its calibration involves determining the parameters of a stochastic volatility model to best fit observed market prices of options contracts, a process crucial for accurate derivative pricing and risk assessment.
The Volatility Surface
Surface ⎊ The volatility surface is a three-dimensional plot that graphically represents the implied volatility of an option as a function of two variables: the option's strike price (moneyness) and its time to expiration.