equity vs fx option price quotes

4ndre1 · July 13th, 2009, 2:31 pm

Hello,Why fx option prices are quoted as function of delta (e.g. bbg function OVDV) while equity options are not?My assumption is that in fx markets, market participants easily agree on forwards, so there is only one unknown - volatility, which is quoted. While in equity markets, market participants do not necessarily agree on future dividend flows, thus neither on forwards. So, there are two unknowns - volatility and dividend yield, thus they quote just the prices of options as function of strike and not delta.Is that right?Thanks.

samyonez · July 13th, 2009, 3:34 pm

it's actually more complicated because even if people could agree on the forwards, the implied volatility isn't yet decided as it also depends on how dividends are modelled. the forward curve tells you the expectation of a dividend, but not the whole distribution, and if dividends are proportional to the stock you need a different vol to if they are known cash amounts in order to match the option prices.