images/contents.gifimages/index.gifimages/prev1.gifimages/next1.gif

Database Skews

Choosing Database Skews from the Vlty Skew menu displays the Volatility Skews menu. Here, the menu contains all defined volatility skews. To choose a skew, click on the skew you want to displays and select Done, or type a skew’s name in the Skew Name field and press b.

images/aspenopt00000088.gif

Field
Function
Name
The name field lists the skew name as it has been saved to the database. Use the Skew Name field for quick lookup.
Date
The first option expiration for which this skew is defined.
CP
If the skew applies to both calls and puts, this field contains “CP”. If the skew applies only to calls, the field contains a “C”. If the skew applies only to puts, the field contains a “P”.
R
If rollover is set to on, this field contains an “R”.
Months
Lists options expirations (by month code) for which the skew is defined. If the extend toggle is set to on, ellipses follow the last month code.
Skew Name
Enables you to look up a volatility skew by typing a name and pressing b.

Selection
Function
Enable Delete
Toggles the menu in and out of delete mode.
Done
Displays the selected volatility skew.

Knowing how to read the Skew List dialog box is important. The Skew List dialog box is your tool for displaying and applying volatility skews, so knowing how to read a skew’s definition using the fields in the Skew List dialog box saves a lot of time.

In the following skew definition,

images/aspenopt00000089.gif

you see first the skew name, VS_US#2#. The name is followed by the date of the first options expiration chain defined by the skew. The third element in the definition tells you whether the skew has been defined to apply to calls, puts, or both using the codes C, P, and CP, respectively. The fourth element signals whether the skew has been defined to rollover; if it has, an R will appear in the field, and if it has not, the field will be empty. The fifth field is about sixteen characters wide so that multiple expiration month codes can be displayed; it indicates, using the common alpha codes for expiration months, the option expirations chosen for display in the skew. Finally, the sixth field indicates whether the skew definition is set for extension; if it set for extension, an ellipsis (...) is displayed following the last month code, and if it not set for extension, no ellipsis is displayed.

As you can see, you can tell quite a lot about a skew just by looking at its definition in the Skew List dialog box. This is important. Being able to read a definition in the Skew List equips you to make informed selections during the skew application process.