A glimpse on why does volatility smile vary from different strikes and asset classes

It is quite common market practice to recapitulate the information in sequence of the vanilla options market in the volatility smile table which includes Black-Scholes implied volatilities for different maturities and moneyness levels.

The degree of moneyness of an option can be corresponded to the strike or any linear or non-linear transformation of the strike. (Forward-moneyness, spot-moneyness, delta).

The implied volatility as a function of moneyness for a fixed time to maturity is generally referred to as the smile. The volatility smile is the crucial object in pricing and risk management procedures since it is used to price vanilla, as well as exotic option books.

For an instance, EURUSD ATM vanilla option has IV at 10.55% for 1w maturities, 9.35% for 1m maturity, but on a strategy or of different strike it certainly varies. When we've chosen a slightly out of the money strike put considering delta risk reversal computations the volatility has also been inched up at 9.71%. This is basically because market participants order flows do not expect the direction the strike price that is chosen.

That is because the market participants entering the FX OTC derivative market (heterogeneous) are confronted with the fact that the volatility smile is usually not directly observable in the market. This is in opposite to the equity market, where strike-price or strike-volatility pairs can be observed.