smile decay

rambo900 · February 16th, 2008, 8:34 pm

could you guys please explain to me what smile decay refers to?thanks in advance.

rambo900 · February 18th, 2008, 12:48 am

does it refer to the decay of otm options? do otm options decay faster than atm (or close to atm) options?

ppauper · February 19th, 2008, 1:26 pm

perhaps this might be the solution ?

Fermion · February 19th, 2008, 9:41 pm

Without knowing the context, my guess is that it refers to the flattening of the smile with longer expirations.

morc · February 27th, 2008, 1:33 pm

This is probably related to the flattening of the volatility surface for longer dated expiries. For many products the volatility curve for a distans expiry is pretty much flat (not really depending on strike) and when that expiry gets closer to expiration the volatility curve becomes more V shaped.