What Determines the Variation of the Forward Volatility and the Shape

question 10

Essay

What determines the variation of the forward volatility and the shape of the forward volatility curve?

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Definitions:

Exponentiation

A mathematical operation involving two numbers, the base and the exponent, where the base is multiplied by itself the exponent number of times.

Mathematical Expression

A combination of numbers, symbols, and operators (such as +, -, *, /) that represents a quantitative relationship or value.

Present Value Calculation

A formula used to determine the current value of a sum of money to be received in the future, accounting for a specific interest rate.

Exponentiation

A mathematical operation involving the raising of one number to the power of another.