The approximation formula reflects the role of the leverage ratio, and thus allows us to link implied volatilities of options on an ETF and its leveraged counterparts. We apply our result to quantify matches and mismatches in the level and slope of the implied volatility skews for various LETF...
They also include the ratio of senior secured loan to junior debt in the capital structure. Logically, the likely severity of loss-given-default for a loan increases with the size of the loan, as a percentage of the overall debt structure. After all, if an issuer defaults on $100M of ...
The approximation formula reflects the role of the leverage ratio, and thus allows us to link implied volatilities of options on an ETF and its leveraged counterparts. We apply our result to quantify matches and mismatches in the level and slope of the implied volatility skews for various LETF...