Volatility Surface Adjustment refers to the dynamic recalibration of implied volatilities across a range of strike prices and expiration dates for crypto options contracts. This process reflects real-time market sentiment and anticipated price movements.
Mechanism
This involves algorithmic models that continuously process market data, including options prices, spot prices, and order book depth, to derive and update a three-dimensional representation of implied volatility. Adjustments occur in response to shifts in supply, demand, or significant news events.
Methodology
The methodology aims to accurately price options, manage portfolio risk (e.g., vega exposure), and identify arbitrage opportunities. This ensures that the volatility surface consistently reflects current market conditions and participant expectations for future price variance, optimizing trading strategies.
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