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Old 06-18-2017, 03:02 PM
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The Disreputable Dog The Disreputable Dog is offline
Join Date: Dec 2011
Studying for prelims
College: Somersby School
Favorite beer: Worldwide Stout
Posts: 988

Originally Posted by ASM 16.2, pg. 295
Risk reversal is the difference between the implied volatilities of out-of-the-money calls and puts, each with the same absolute value of delta (typically 0.25). In other words, it is σcall - σput where the call has Δ = 0.25 and the put has Δ = -0.25.
I had a "?" written next to this in my manual, so of course it popped up on a practice test.
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