Volatility Smile

Volatility Smile

A common graphical shape that results from plotting the strike price and implied volatility of a group of options with the same expiration date.

Notes:

A volatility smile is used by investors to price options in the foreign currency market and the equity option market.

See also: At the Money, Black-Scholes Model, Expiration Date, In the Money, Implied Volatility, Options, Out of the Money, Put Call Parity, Strike Price