How Market Crashes Can Change the Shape of Implied Volatility

Summary

The document notes that equity options have shown implied volatility skew and smile since the 1987 stock market crash, and asks whether another future event could alter that distribution. It raises a question about how market structure and option pricing patterns may change in response to major shocks.

No model, analysis, or evidence beyond the historical observation is provided, so the document does not establish what might cause a new shape or how traders could anticipate one. It serves as a prompt for discussion rather than a developed explanation or forecasting method.

Key ideas

• Equity options have exhibited implied volatility skew and smile since the 1987 market crash.
• A future event could potentially change the shape of the implied volatility distribution.
• The document poses the question but offers no analysis or proposed answer.

Tags

# Could the Implied Volatility distribution change again?


# Could the Implied Volatility distribution change again?












It is well documented that following the stock market crash in 1987 the prices of options started to demonstrate skew and smile in the distribution of implied volatilities. This feature has been present in equity markets ever since. Could a future event change the shape of the implied volatility distribution again?

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.