A measure that captures the premium difference between the value of an option calculated using the smile volatility and its value derived using the at-the-money volatility (ATM volatility). It is approximately equal to vega times smile volatility less ATM volatility difference. If smile volatility is larger than ATM volatility, zeta will have a positive value. The opposite is true (if smile volatility is smaller than ATM volatility, zeta will have a negative value).
January 23, 2023