What Is a "Volatility Surface" and How Is It Used in Risk Management? ▴ Learn

What Is a “Volatility Surface” and How Is It Used in Risk Management?

A volatility surface is a three-dimensional plot that displays the implied volatility for all available strike prices (x-axis) and all available expiration dates (y-axis) for a given underlying asset. Risk managers use it to visualize and model the entire volatility structure, which is crucial for accurately pricing complex options and calculating portfolio-wide risk and margin requirements.

How Do Options Market Makers Use Volatility Skew to Price and Manage Their Derivatives Risk?

How Does a Market Maker “Flatten” Their Position on the Volatility Surface?

Does the Black-Scholes Model Inherently Account for the Volatility Skew?

How Does the Concept of “Deep In-the-Money” Differ for Calls and Puts?