Modeling IV

Lol, you're like the dude who doesn't understand how lightbulbs work, therefore calls them witchcraft and advocates candles

 

Seriously?....

 

@MrMuppet would you mind explaining the x-axis on that cool looking graph that you posted?

 

It's simple: I take call IV for upside strikes and put IV for downside strikes.

 

Interesting... Is there "put/call parity" at work there? Having some trouble wrapping my head around this. Why would you not plot the high delta calls (or puts)?

 

Did you get it figured out yet?

 

Yes, it's put call parity.
The reason for this is liquidity. Look at the quote of a 90 delta ITM call. I'd rather take the IV of the 10 delta OTM put. The IV figure is the same (put-call parity) but the midprice is much more acurate.

 

Fucking lol

 

You may wanna also have a look at the, Dumas, Fleming and Whaley paper.

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=7373