Talking about skew
Thanks Kris, for the write up. I hope you'll someday touch on "spot vol correlation" in your futures posts.
Curious if you have any thoughts on measuring/pricing the event skew. E.g. We can attribute variance to known events such as earnings, FOMC, CPI, etc. But it feels trickier when you get to higher orders such as skew and wings.
I agree it's trickier and don't have a great framework for that anchored in vol space (I believe they exist though).
This post is how I think about it practically.
(In general, straddles and vols understate risk in the presence of skew. MAD and standard dev will diverge)
https://moontower.ai/blog/binary-straddle-example-based-on-the-2016-election
Thanks Kris, for the write up. I hope you'll someday touch on "spot vol correlation" in your futures posts.
Curious if you have any thoughts on measuring/pricing the event skew. E.g. We can attribute variance to known events such as earnings, FOMC, CPI, etc. But it feels trickier when you get to higher orders such as skew and wings.
I agree it's trickier and don't have a great framework for that anchored in vol space (I believe they exist though).
This post is how I think about it practically.
(In general, straddles and vols understate risk in the presence of skew. MAD and standard dev will diverge)
https://moontower.ai/blog/binary-straddle-example-based-on-the-2016-election