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Strategies & Market Trends : Waiting for the big Kahuna

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To: Arik T.G. who wrote (9261)	11/6/1997 1:29:00 PM
From: Defrocked	Read Replies (1) of 94695

The volatility skew may be a modeling failure rather than a market failure. Basic option models assume that volatility is constant. By modeling volatility as another stochastic term the "volatility smile" or "hockey stick" can be reduced greatly and explained without assuming deep OOM put buyers are irrational.( See Hull and White option textbook.) Good luck to you.

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