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Interpreting a Reversed Implied Volatility Smile in Ibex 35 Options

Article Quant Q&A · Author: OriolMad
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Summary

The document describes an observed inverse relationship between strike and Black–Scholes implied volatility for Ibex 35 options. The author says the option prices and strikes came from daily exchange data, plots spot alongside the volatility curve, and compares the result with a conventional smile found for S&P 500 options.

It raises the possibility that an anticipated large jump could produce this shape, based on a reference to Hull, and asks whether that explanation applies to an index. The document provides no chart, dates, contract details, diagnostic checks, or reply, so it does not establish whether the pattern is a genuine market feature or a calculation or data issue. It is useful as a prompt about interpreting index option skews, but not as evidence for a particular explanation.

Key ideas

  • Implied volatility can vary sharply across option strikes, producing a reversed smile shape.
  • The author compares the observed Ibex 35 pattern with a conventional S&P 500 smile.
  • A large anticipated jump is raised as a possible explanation, but the document does not evaluate it.
  • Without contract details or an answer, the cause of the observed shape remains unresolved.

Tags

OptionsVolatilityDerivatives pricing
Full text
# Inverse Smile Volatility Ibex35


# Inverse Smile Volatility Ibex35












I was analysing ibex implied volatility and when I draw it I found it was reversed:

X axis are the strikes and Y axis implied volatilities calculated by BS. The blue line is the spot price. Data (option price and strike) is gotten from MEFF daily info (http://www.meff.com/docs/Ficheros/boletin/esp/boletinpfri.htm).

I first thought I made a mistake but I checked with SP500 and I obtained a normal smile volatility.

Do you have any idea why it has this shape? Hull says that it’s possible when a single large jump is anticipated but he talks about a stock not an index.

Thanks a lot

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