Abstract

http://ssrn.com/abstract=1618602
 
 

References (25)



 
 

Citations (1)



 


 



What Does Implied Volatility Skew Measure?


Scott Mixon


Commodity Futures Trading Commission

May 1, 2010


Abstract:     
This paper provides theoretical guidance and empirical analysis aimed at differentiating among implied volatility skew measures. Industry analysts and academics use a variety of measures, but most have little formal justification. I find that most commonly used skew measures are difficult to interpret without controlling for the levels of both volatility and kurtosis. Many ad hoc measures fail to meet the conditions for a valid skewness ordering. My preferred measure is the (25 delta put volatility - 25 delta call volatility)/50 delta volatility; among the measures considered, it is the most descriptive and least redundant.

Number of Pages in PDF File: 40

Keywords: Options, Implied Volatility Skew

JEL Classification: G13

working papers series





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Date posted: June 2, 2010  

Suggested Citation

Mixon, Scott, What Does Implied Volatility Skew Measure? (May 1, 2010). Available at SSRN: http://ssrn.com/abstract=1618602 or http://dx.doi.org/10.2139/ssrn.1618602

Contact Information

Scott Mixon (Contact Author)
Commodity Futures Trading Commission ( email )
1155 21st Street NW
Washington, DC 20581
United States
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