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Title:FX volatility smile construction PDF Logo
Authors:Reiswich, Dimitri
Wystup, Uwe
Issue Date:2009
Series/Report no.:CPQF Working Paper Series 20
Abstract:The foreign exchange options market is one of the largest and most liquid OTC derivative markets in the world. Surprisingly, very little is known in the academic literature about the construction of the most important object in this market: The implied volatility smile. The smile construction procedure and the volatility quoting mechanisms are FX specific and differ significantly from other markets. We give a detailed overview of these quoting mechanisms and introduce the resulting smile construction problem. Furthermore, we provide a new formula which can be used for an efficient and robust FX smile construction.
Subjects:FX Quotations
FX Smile Construction
Risk Reversal
Delta Conventions
Malz Formula
Document Type:Working Paper
Appears in Collections:CPQF Working Paper Series, Frankfurt School of Finance and Management

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