--- title: "What are the volatility surface, SABR and local volatility?" description: "The volatility surface lays implied volatility out across strikes and expiries, and SABR is a model that fits the smile of one expiry with four parameters." source_url: "https://www.rupeecase.com/learn/questions/volatility-surface-sabr" --- On the 30 Jun 2026 chain, implied volatility is higher below the future than above it, so the smile leans Implied volatility of each traded NIFTY strike on the 10 Jun 2026 chain for the 30 Jun 2026 expiry, within eight percent of the future. Each strike is inverted from its settle price with Black 76. Strikes with no trade are left out. Source: NSE end of day data, computed by RupeeCase. As of 10 Jun 2026. Each option price gives one implied volatility. A chain therefore gives a smile across strikes for each expiry, and several expiries stacked together give a surface. The smile is the shape across strikes, and the term structure is the shape across time. The chart shows the smile of the 30 Jun 2026 Nifty chain as priced on 10 Jun 2026. Implied volatility is higher on the strikes below the future, with a smaller lift on the strikes far above it. SABR, the stochastic alpha beta rho model, describes the forward and its volatility with four inputs: alpha sets the level, beta sets how volatility moves with the forward, rho sets their correlation and nu sets the volatility of volatility. A fitted SABR reproduces one expiry's smile and gives a sensible shape between strikes, which is why it is used to quote and to interpolate. Local volatility is a function of the index level and time that reproduces every option price on the surface. Its weakness is the dynamics. It implies that the smile moves in a way the market often does not, so a hedge built on it can be wrong once the index moves. The choice of model depends on the trade it serves. Stay with the data. The chain gives implied volatility only at strikes that traded, so a curve between them is an interpolation, and the wings are the least reliable part. A fit to one settlement snapshot shows the shape at that moment, not a forecast. The [smile and skew page](/learn/questions/volatility-smile-vs-skew) sets out the measures. **Before you trade.** Derivatives trading carries a high risk of loss. SEBI's study "Profitability of Individual Traders in the Equity Derivatives Segment (FY25 to FY26)" (August 2026) found that 87.7% of individual traders in equity F&O made net losses in FY26, with aggregate net losses of Rs 91,685 crore. [Read the SEBI study](https://www.sebi.gov.in/reports-and-statistics/research/aug-2026/study-profitability-of-individual-traders-in-the-equity-derivatives-segment-fy25-fy26-_103835.html) What are the volatility surface, SABR and local volatility?The volatility surface lays implied volatility out across strikes and expiries, and SABR is a model that fits the smile of one expiry with four parameters. Local volatility fits every price on the surface exactly but gives different dynamics, so each model suits a different job rather than showing how volatility really moves. LGo deeper ## Where Learn teaches this. [Go deeperSolving for implied volatility9 min, Intermediate](/learn/path-16/module-16-3-solving-for-implied-volatility)[Go deeperIV rank and IV percentile, done properly9 min, Intermediate](/learn/path-16/module-16-4-iv-rank-and-iv-percentile)[Try itIV solverThe implied volatility behind a dated settlement price.](/learn/tools/iv-solver) SSources ## Go to the source. 4 sources, Book the most cited The publisher of each source listed below. Source: Module undefined source list. 1. [NSE, option chain page (the live screen; Learn uses only dated end of day files)](https://www.nseindia.com/option-chain) NSE 2. [NISM, Series VIII equity derivatives test objectives (the syllabus names the Greeks, open interest, volume and the put call ratio)](https://www.nism.ac.in/revamp-nism/test-objectives-revised-nism-series-viii-equity-derivatives-certification-examination/) NISM 3. Hagan, Kumar, Lesniewski and Woodward, Managing Smile Risk, Wilmott Magazine (2002) Paper 4. Gatheral, The Volatility Surface: A Practitioner's Guide (2006) Book ?Questions people ask ## Related questions. [QuestionVolatility smile or skew: what is the difference?Intermediate](/learn/questions/volatility-smile-vs-skew)[QuestionWhat is forward volatility and how does it relate to calendar spreads?Advanced](/learn/questions/what-is-forward-volatility)[QuestionWhat is a variance swap?Expert](/learn/questions/what-is-a-variance-swap)[QuestionHow do I calculate IV for Nifty options?Intermediate](/learn/questions/calculate-iv-nifty-options)[QuestionIV rank or IV percentile: what is the difference?Intermediate](/learn/questions/iv-rank-vs-iv-percentile) [All 130 questions](/learn/questions/) Explore next ## Go deeper on this question. * [QuestionWhat is implied volatility?A short answer with a dated chart](/learn/questions/what-is-implied-volatility) * [QuestionHow do volatility forecasting models like GARCH work?A short answer with a dated chart](/learn/questions/garch-volatility-forecasting) * [ToolOption payoff builderLegs on a dated Nifty chain, breakevens and charges](/learn/tools/payoff-builder) * [GlossaryInvesting glossary, 230 termsPlain word definitions, and the app’s own](/learn/glossary) Community ## Join my WhatsApp group. 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