Modelling Volatility Smile In Python

By Devang Singh In this article, you will learn about the origin and implications of Volatility Smile. You will also see how to plot the volatility smile curve in Python. To start with, we will understand the concept of Volatility Smile by analyzing the assumption in Black Scholes Model (BSM), that the underlying’s daily returns are lognormally distributed. Black Scholes Model - Lognormal Assumption Black Scholes Model assumes the returns of the underlying to be lognormally distributed. Whereas.