Department of Finance, Henry B. Tippie College of Business, University of Iowa, Iowa City, IA 52242-1000, USA
National Bureau of Economic Research
Abstract:
This article presents a simple “model-free” method for inferring deltas and gammas from implicit volatility patterns. An illustration indicates that Black–Scholes deltas and gammas are substantially biased in the presence of the sort of smirks and smiles evident in stock index options.