How to interpret this formula?
Arun, This is a Moneyness calculation for options to normalize a set of options at a standard reference location around 0. it is not an options implied skewness, though most literature on option implied skews use a normalization metric of this type. I used it in my dissertation and originally saw it in works by Derman, etal of Goldman Sachs. Other common normalizations are a delta equivalent at pre-set intervals: +/-5%, +.-10% around ATM delta, or 10, 25, 50, 75, 90 deltas. Good Luck Joe W. Byers On 10/12/2013 03:03 PM, R. Michael Weylandt <michael.weylandt at gmail.com> wrote:
I'll admit it seems rather fishy -- impossible perhaps to have something 'implied' by the option price without the option price in the formula -- but it's a hair off-topic for an _R_ finance list. Perhaps quant stackexchange would work? But unless you're willing to share your reference, I doubt folks there will be able to help you much. In general, if you want folks to help you understand what you are reading you should tell them what you are reading in the question. Michael On Oct 12, 2013, at 15:53, Arun Kumar Saha <arun25558038 at gmail.com> wrote:
Hi,
I have come across a formula to calculate the Option implied skewness which
is calculated as (Strike/underlying's price - 1)
Has anyone come across a similar type of formula?
Can somebody please explain how can I derive that? Any online
reference/paper is highly appreciated.
Thanks and regards,
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