How fat tails, volatility surfaces and exotic payoffs reshape option pricing
This article takes a deeper look at future volatility and therefore complements our second article Volatility: neutralising Vega . Volatility is neither constant nor known in advance Because volatility is neither constant nor known in advance, we need an adapted framework to apply it to the various options embedded in structured products. Before we dive in, let’s take a brief historical detour. After the “Black Monday” crash in 1987 It’s worth recalling, in a first