FXfront-officeinstrument

Risk Reversal

Call-minus-put volatility at matched absolute delta.

Reviewed 2026-08-10TheQuantBateman Research2 linked labs

01Intuition

Build the mental model first.

Risk reversal measures directional asymmetry in the smile.

ONE-LINE DEFINITION

Call-minus-put volatility at matched absolute delta.

02Mathematics

RR_{\Delta}=\sigma_{call,\Delta}-\sigma_{put,\Delta}

Notation and units

Decimal rates and volatilities, year-fraction time and continuous compounding unless stated otherwise.

03Assumptions

Educational conventions are stated explicitly and may simplify market quotation or settlement details.

Rates are continuously compounded unless the section says otherwise.

Inputs are deterministic in the base model.

“An unstated convention is a future reconciliation break.”— THEQUANTBATEMAN

04Market use

Quotes skew and packages directional convexity exposure.

Intuition→Mathematics→Implementation→Desk risk

05Desk view

FRONT OFFICE VIEW

Start with the quote convention, then ask which FX risk survives the hedge. A number without its convention is merely well-dressed ambiguity.

06Related