Fáth Gábor (Morgan Stanley): Smile! – How to trade volatility

Options are financial products that traders can use to trade market volatility. However, volatility is a multi-dimensional, dynamical property of the market which needs to be properly measured and modelled. I will discuss some of the standard market models designed to understand volatility and options pricing including Black & Scholes' "constant volatility", Dupire's "local volatility" and some famous "stochastic volatility" models like SABR. There will be one key message behind all of this: SMILE!