How do i create this graph on latex?

Question

So…i made this graph using paint(!)…and it looks horrible. I have used tikz to create similar graphs but this one seems to be more difficult.

Answer 1

Here is one approach. Most parts are straightforward TikZ syntax. The somewhat unique parts of this drawing are the multipart nodes and the smooth curves, which I'll explain a bit more in this answer.

For the multipart nodes, I defined a style mysplit that's applied to each node we want to split. This avoids repeating yourself and ensures consistency in your drawing. The first node text is placed in the one subpart of the node, and following \nodepart{<part>} following text is placed in the <part> subpart of the node. Then later on we can refer to anchors of each specific subpart (the last two \draw commands).

Some people find the .. controls .. interface for creating Bézier curves too verbose for some curves (myself included). Here, I use to paths instead. Each part of the to path takes in and out parameters: the incoming and outgoing angle of the curve. These angles can be varied to produce different curves. The looseness parameter (default 1.0) is also adjustable.

Here's the full code:

\documentclass[tikz]{standalone}
\usetikzlibrary{shapes.multipart}
\tikzset{mysplit/.style={%
  draw,
  anchor=text,
  rectangle split,
  rectangle split horizontal,
  rectangle split parts=2,
}}

\begin{document}
\begin{tikzpicture}[align=left]
  \draw[looseness=0.7] (0.5,2.8) coordinate (OutMoney)
    to[out=-45,in=180] (3,1.5) coordinate (AtMoney)
    to[out=0,in=210] coordinate[pos=0.75] (InMoney) (6,2.8);
  \draw[dashed] (OutMoney) |- (3,0) -| (InMoney);
  \draw (AtMoney) -- (3,0) node[midway,fill=white] {At the money};
  \draw[thick] (0,3) node[below left] {Implied\\volatility} 
    |- (6,0) node[below] {Strike};
  \node[mysplit] (Out) at (-1.5,-2) {Out of the\\money\\put 
                                      \nodepart{two} 
                                     In the\\money\\call};
  \node[mysplit] (In)  at ( 4.5,-2) {In the\\money\\put 
                                      \nodepart{two} 
                                     Out of the\\money\\call};
  \draw (Out.one north) to[out=90,in=210] (1.25,1.5);
  \draw  (In.one north) to[out=90,in=-30] (4.25,1.25);
\end{tikzpicture}
\end{document}

And the output: