Quantitative Finance Stack Exchange
Quantitative Finance Stack Exchange

Questions tagged [implied-volatility]

The volatility of the price of the underlying security that is implied by the market price of an option based on an option pricing model.

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Rich Volatility, Poor Volatility

I have been thinking very hard about properly pricing volatility. Outside of naive AR,ARCH,GARCH forecasting model which employs past data to forecast future vol, how does one "fundamentally" value volatility??? The key word here is…
Abe
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Why use implied volatility

First I'll describe the way I understood things so far from the literature, feel free to correct me here, and then I formulate some questions. I'd search through QSE, but haven't found so far similar question. The BS model assumes the stock to…
SBF
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What functional form describes the implied volatility curve?

It is often convenient to parametrize the implied volatility curve to allow easy interpolation of volatility for any strike or maturity. What functional form describes the implied volatility curve for options at varying strikes and fixed maturity?
John Channing
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Lib for Arbitrage-Free Smoothing of Implied Volatility Surface?

I'm looking for an implementation of Arbitrage-Free Smoothing of the Implied Volatility Surface - Matthias R. Fengler. Does anyone know of any existing libraries that have implemented this paper? Any method is ok (Excel, C++, Matlab, Mathematica,…
Contango
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What is implied volatility?

I always understood implied volatility as a volatility I need to plug into BS in order to get the market price. My question is if I am using different model, does it mean that implied volatility is the volatility I need to plug into pricing…
Michael Mark
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SVI negative rates

I've used the SVI model in the past for equity option which worekd quite well. I came across a post on Wilmott where someone said hes using SVI for swaption as well. I would like to test the model and fit it to swaption implied volatitilities…
math
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Procedure/methodology for building equity volatility surface

EDIT: I update while making progress: I am trying to build (model implied) volatility surfaces for individual equities. I will use these surfaces to calibrate models to price different derivatives (plain vanillas and exotics). An important note is…
raptor22
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Newton's Algorithm for Implied Volatility

I was studying the implied volatility for European Vanilla Call option. My notes said that we can apply Newton's algorithm to calculate implied volatility numerically. I understand how the algorithm works and the updating part is straightforward.…
Van Tom
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Is the Implied Volatility Curve different under the Black-Scholes and Bachelier models?

Say we plot the implied volatility against strike price and moneyness for some options. As the implied volatility depends on the option pricing model it is reasonable to expect some differences here. What do the curves look like for the Bachelier…
Dareo
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Relation between IV and SD

In option pricing, volatility naturally appeared through the Black-Scholes (BS) model where it was a coefficient for the linear diffusion term $\sigma S\,\mathrm dW_t$, and as such represented the time-scaled Standard Deviation (SD) of…
Ulysses
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Relation between Implied and Historical Volatility of GBPUSD and USDGBP

Q1. How is the implied volatility of GBPUSD and USDGBP related to each other mathematically? Please explain this intuitively as well. Q2. How is the historical volatility of GBPUSD and USDGBP related to each other mathematically? My take (…
Ussu
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What is forward moneyness and how to calculate it?

I'm now studying the concept "implied volatility", and my teacher gave us a figure about the implied volatility with respect to the moneyness which is expressed by …
Francis Gong
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Could the Implied Volatility distribution change again?

It is well documented that following the stock market crash in 1987 the prices of options started to demonstrate skew and smile in the distribution of implied volatilities. This feature has been present in equity markets ever since. Could a future…
John Channing
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How to calculate implied vol for next trading day?

We can seem to get implied vol for a period from now to option expiration, but does anything tell us implied vol for the next trading day ? Like if fomc is tomorrow the next day implied vol would be much higher.
Luncheater
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Since implied volatility is the standard deviation of returns, why do people treat it as the standard deviation of the price process?

In the Black Scholes framework, the parameter sigma (volatility) is the standard deviation of the underlying's returns NOT the standard deviation of the underlying price process. But I often see when people talk about implied volatility that they…
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