The Volatility Surface

The volatility surface is a tool used in finance to visualize how the expected price fluctuations (volatility) of an asset vary across different option strike prices and expiration dates. It looks like a 3D chart showing how risk perception changes with price levels and time. Traders use it to assess market expectations and to price options accurately. The surface can reveal market sentiment, such as fears of large moves or calm periods, and helps in making informed investment decisions. Think of it as a map showing where the market perceives more or less risk at different points.