CFA Practice Question

There are 227 practice questions for this study session.

CFA Practice Question

The volatility surface is a three-dimensional plot of implied volatility with respect to both ______ and ______.
A. expiration time; exercise prices
B. expiration time; the risk-free interest rate
C. exercise prices; the risk-free interest rate
Explanation: The volatility surface is a three-dimensional plot where the x-axis is the time to maturity, the z-axis is the strike price, and the y-axis is the implied volatility. If the Black-Scholes model were completely correct, then the implied volatility surface across strike prices and time to maturity should be flat. In practice, this is not the case.

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