Latest / The Trading Floor with David Axtell
FX Options: Mind the Gap Between the Model and the Market
Why do FX options sometimes behave very differently from what the pricing formula suggests?In this episode of The Trading Floor, Luigi Pascal Rondanini explores the gap between financial models and the realities of the foreign exchange options market.Models such as Black-Scholes, local volatility, stochastic volatility and SABR are essential tools—but every model is a simplification. Professional skill lies in recognising when a model is providing a useful approximation, when its assumptions are breaking down, and when model risk is becoming a material trading or hedging risk.The episode…
The skinny
The skinny isn't ready yet — notes appear once the transcript is processed.