Volatility Smile and Skew | FRM Part 2 | Market Risk

In this video, we explore this concept of volatility smile and skew. This topic comes up in the Market Risk book (Book 1) of the FRM Part 2 curriculum. For more preparation resources related to FRM Part 2 exam, please follow the link below:
www.finRGB.com/courses/frm-pa...

[@charlesrambo7845]

Great video! The (small) issue I noticed was that the normal and not the log-normal distribution was plotted. S being log-normally distributed implied log-returns are normally distributed, and what was said applied better to log-returns. At any rate, thanks you so much for posting. I love all your FRM videos!

[@finRGB]

Thank you for the appreciation, Charles. The plot is indeed meant to be for the log normal distribution, I guess the free-hand drawing didn't do much justice to the intended distribution :)

[@gireeshkodali1231]

Very helpful video. Thank you. On the Volatility smile graph (for bullish markets), I guess the video does not explain on why the In-the-money calls have an Implied Vol (IV) that is so much higher than the At-the-money calls. Would you be able to explain briefly, please?

[@puneetgupta9116]

If market have the sentiment that stock will go down in futre, investors will sell ITM calls to earn much elevated premium and hence demand of such ITM calls increases.

[@landryeteme4984]

Great