What is Swaption Skew in Interest Rate Derivatives?

MFEGRAD · November 14th, 2006, 2:32 am

Hi,what is Swaption Skew, and what is the risk in Skew? How can it be measured and hedged? Cheers

vegavexity · November 23rd, 2006, 3:36 pm

I don't really understand your question.... You don't know what skew is?

johnself11 · November 26th, 2006, 5:54 am

vol skew is the phenomena of option vols diverging from the at-the-money vol as the strike is changed

pcg · December 15th, 2006, 6:16 am

There are two aspects to the Options vol by strike curve.Smile and skew.Skew is there in the difference between the levels of similar delta options on either side of ATM.Smile is there due to OTM vols being different from ATM vols .Symmetrical but non-normal distribution of returns of the asset may give smile but not skew. An asymmetric distribution will give a skew as well.

pcg · December 15th, 2006, 6:16 am

There are two aspects to the Options vol by strike curve.Smile and skew.Skew is there in the difference between the levels of similar delta options on either side of ATM.Smile is there due to OTM vols being different from ATM vols .Symmetrical but non-normal distribution of returns of the asset may give smile but not skew. An asymmetric distribution will give a skew as well.