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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181 views

Calculating historical implied volatility

I know that each individual option has it's own implied volatility, but how do you go about calculating the overall implied volatility for an underlying? For example when someone sais the IV of a ...
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1answer
17 views

How do they calculate stocks implied volatility?

I know the construction of Black-Scholes model and how do we solve it for an Implied Volatility. But in general, which option price do Softwares use to come up with Implied Vol for Overal Stock, let'...
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1answer
70 views

How to compute 30/60/90-day Implied Volatility?

I want to calculate the 30/60/90/180 day 100% moneyness implied volatility for a stock. I think I know how to do it but would like to share my thought processes with the group to verify I'm on the ...
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1answer
226 views

Volatility Smile Approximation

Does anyone know what type of model is used to model the skew and IVs inside Thinkorswim platform for its volatility smile approximation? I am trying to replicate but do not know where to start. Any ...
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0answers
34 views

CBOE Index Minute Data

I am doing a small research and looking for a place to purchase historical minute CBOE Index data. I am interested in: VIX - CBOE Volatility Index VVIX - CBOE VIX VOLATILITY INDEX VXV - CBOE VIX ...
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1answer
73 views

why Implied Vol (VIX) increase with decrease in Stock Price or vice versa?

why Implied Vol (VIX) increase with decrease in Stock Price or vice versa? whereas Vega is positively related with change in option price to change in stock price.
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1answer
60 views

construct volatility smile based on historic observations

So I calculated historic volatility/skewness/kurtosis for a commodity. I now would like to construct a volatility smile that reflects this historically realized distribution. I tried using some ...
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1answer
218 views

Hedging - calculating option prices using implied volatility surface

To hedge a strategy is it accurate "enough" to price an option using an implied vol curve vs moneyness (strike/spot) assuming sticky delta? The moneyness can be read off the chart, its corresponding ...
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43 views

Transition Between Volatility Regimes

Emanuel Derman wrote a great paper in 1999 about volatility regimes and the adjustments the market makes during these periods (sticky strike, sticky implied tree, sticky delta, etc). Has any ...
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45 views

How can we observe volatility smile from the market. Drawbacks of Heston Stochastic Volatility Model

Here are two questions related to implied volatilities. a) The set up here is for an European option. We can get its implied volatility smile from calibration, the question is why could we also ...
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1answer
45 views

Difference between Deterministic Volatility Function approach and Ad Hoc Black Scholes?

I am thoroughly confused after reading Dumas, Fleming & Whaley (1998) "Implied Volatility Functions: Empirical Tests". Both the Ad Hoc BS Model and the Deterministic Volatility Function ...
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1answer
65 views

SABR Calibration: Normal vs Log-Normal Market Data

This question is about getting some clarification as to how to understand market quotes for normal & log-normal vols together with certain model assumptions. So let us define $C_{BS}(F_0,K,T,\...
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2answers
62 views

SABR Model Closed Form Solution

I've been researching the SABR model and one of the main benefits it seems is that you can obtain a closed for solution of the implied BS volatility in certain cases. In all the papers I've read, I ...
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1answer
160 views

Extrapolating SVI

In his paper Gatheral presents the following parametrization of the implied total variance $w(k,T) = \sigma_{BS}(k,T)^2T$ $$ w(k) = a + b\{\rho (k-m) + \sqrt{(k-m)^2 + \sigma^2} \}.$$ Assuming that ...
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2answers
180 views

Tradable information from BS Implied volatility

These are two follow up questions to: Implied volatility as price transform I understand that the BS model is used as a 'Blackbox' that takes a market price and maps it in a 1to1 fashion to a 'BS ...
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0answers
23 views

Interest rates - Swaptions implied volatility - Volatility anchoring with Black and with normal volatilities

In a LMM+ with displacement factor a volatility anchoring technique is used, i.e. a long term volatility assumptions is applied, derived from historic time series. Should I adjust this historic ...
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2answers
143 views

SABR Implied Volatility and Option Prices

I am trying to understand the SABR model. Specifically, I am having difficulty to understand how to calibrate the model parameters, that is, initial variance, volatility of variance, exponent for ...
6
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1answer
120 views

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 ...
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0answers
44 views

Implied volatility

I have a question about calculating the implied vol. Assuming the implied vol that a option will expire in 1 day is $\sigma_1$, and the implied vol that the option will expire in 2 days is $\sigma_2$. ...
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4answers
547 views

Trading spot volatility

I am reading a paper that very briefly talks about some volatility arbitrage strategies. It's so brief that I do not exactly understand how it works. It says one of the strategy is based on "short ...
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43 views

Comparison of Implied Vol Models

My goal is to evaluate a collection of implied volatility models for accuracy supporting real time theoretical pricing of listed equity option. My current research approach is to define a set of ...
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1answer
26 views

Is it possible to find / estimate the volatility surface of non-listed index options?

I have 3 QNET options (european, 2 puts, 1 call, all same expiry, different strikes) that the broker is pricing clearly off a volatility surface. Bloomberg only carries historical volatility and I ...
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1answer
153 views

Calendar Arbitrage in a Vol Surface

I am trying to determine the condition such that my implied vol surface doesn't have calendar arbitrage. I have done research and found that one such condition is that total variance should increase ...
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105 views

existence of implied volatility

I read a book where it was written : 1/ "implied volatility is the market's consensus on the volatility of the asset between now and the maturity of the option". -> Could someone explain me this ...
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97 views

Solving for r in the Black Scholes equation

Could you please correct which parts of my reasoning are wrong? Let's suppose that I know for sure that my estimate for a stock volatility is right (I have a crystal ball) and that it will be for ...
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1answer
30 views

ATM volatility and flat volatility

Why do the implied volatility curve and the flat curve cross over the ATM volatility (at 100%) ? Tx
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3answers
1k views

How to exploit calendar arbitrage?

Say we are looking at European Call options in a toy environment with zero deterministic intereset rates, a stock paying no dividends, no repo rates etc. Let C(T,K) be the price of a call with expiry ...
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151 views

Transforming 3M volatilities into 6M volatilities in EUR forecast curves

I have implemented a stripping algorithm to extract forward volatilities from cap/floor flat volatilities for different currencies. I am however struggling a bit when implementing a method to convert ...
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2answers
49 views

Implied Volatility as proxy for instantaneous volatility

In many papers and book I have found a reasoning that it is well summarized in this paper as "The first proxy we use is an unadjusted Black-Scholes proxy in which the implied volatility of a short-...
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1answer
98 views

What are some markets that don't have volatility smiles and why don't they?

I have read that volatility smiles didn't show up for equity options until 1987. Can some one give me an example(s) of what markets now still don't have volatility smiles and what an explanation for ...
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2answers
170 views

How to calculate Implied Volatility for out-of-the-money options?

I'm trying to calculate the implied volatility for out-of-the-money options, and to a lesser extent, in-the-money options. Most of the literature estimations I could find for implied volatility were ...
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3answers
62 views

Constant Maturity IV

I want to analyze IV skew under various market conditions but its hard given various expirations. Would it make sense to create a constant maturity IV that say is 60 DTE? Has anyone done this and what ...
4
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2answers
106 views

Probability that realized volatility is larger than implied volatility

I did a test about quantitative finance. One of the question was : What is the probability, in the Black-Scholes world, that the realized volatility is larger the implied volatility ? And why ? ...
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3answers
103 views

Sensitivity of short-term vs long term options' IV

I could see that the short-term options' IV raises on earnings announcements when longer-term options' IV does not react too much. So I had this doubt, "Is the volatility of short-term options' IV ...
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1answer
38 views

Rate of Options decay

I know "Time decay accelerates on nearing expiry". But I want to know the rate of acceleration. How curvy is the theta curve? Answers could be like, Provided IV is stable, in a 3-month contract,...
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34 views

IV of stocks vs IV of options

As for as I have seen, Implied volatility of stocks are easy to understand as there will always be a peak and fall(usually on earnings announcement dates). The magnitude differs but the wave pattern ...
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2answers
147 views

Why is the term structure of the implied volatility surface non-monotonic?

Does this reflect expectations & uncertainty about interest rates (exposure to rho?), event driven concerns about the underlying, or something else?
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1answer
56 views

Interpolating on the BS parameters and injecting in the BS formula vs interpolating directly on option prices

Let's consider a simple European call option. In practice, the way the Black-Scholes formula is used to price it is by injecting all of the parameters and paying special attention to the volatility ...
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1answer
214 views

Implications of shifting the lognormal model for forward rates from a probability perspective

I have a question regarding the application of a shift to the Black-Scholes formula for negative forward rates. I am reading in the Brigo book that "increasing the shift $\alpha$ shifts the ...
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0answers
32 views

Inverse Smile Volatility Ibex35

I was analysing ibex implied volatility and when I draw it I found it was reversed: X axis are the strikes and Y axis implied volatilities calculated by BS. The blue line is the spot price. Data (...
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25 views

What kind of crisis can drag Implied Volatility down globally?

I want to trade buying long straddles with low IV ranks. I wonder what could be a crisis for me. I believe any kind of economical crisis would increase the IV. What happening could be a crisis for me? ...
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381 views

Historical Volatility vs Implied Volatility Performance in Pricing Options

I consistently read on academic papers, when pricing options, using implied volatility is better than using historical volatility. Because, market is more "forward-looking" and historical data is "...
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40 views

Vol surface changes as underlying moves

We market make in highly liquid, near term options markets. I want to build a risk report that tells us how our portfolio's greeks will change as the underlying moves. This is for risk management in ...
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4answers
152 views

How to select the initial guess for implied volatility?

When we calculate the implied volatility, we would need to give the solver a range to start with. For example, QuantLib uses [0,4.0] for the range, which is another way of saying try all possible ...
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2answers
158 views

Constructing a minute-by-minute volatility curve

For market making in front month vanilla commodity options we need a volatility curve that updates every second or so as the underlying and the options change prices. If all the strikes have a good ...
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0answers
24 views

FX Implied Volatility for Longer Term Maturities

To my knowledge, FX implied volatility can only be obtained from the market for time horizons up to about 5 years due to liquidity limitations. So how would we obtain volatility estimates for longer ...
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1answer
49 views

Why is there an upper limit on the premium of an ATM (!) call swaption in the Black76 model?

Trying to imply Black76 (where the forward swap rate is log-normal) volatilities as Bloomberg does in their VCUB screen we see holes at two regions: at short maturities due to negative rates which ...
5
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3answers
143 views

Is Complete Vega Elimination Possible?

I avoid short selling in my strategies. Losing more than invested is not attractive. But at times the implied volatility is too high, I am worried about buying at all and I am trying to filter the ...
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1answer
65 views

What is the formula that determines when VIX futures expire?

Or a source that will allow me to just get the list of dates into a program, I'm trying to do this in python but I want it to be able to figure out the next expiration automatically, or something like ...
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2answers
92 views

Difference in implied volatility calculation

I've been using vollib to calculate IV, but my answers have been different by tenths from other sources like NASDAQ and Yahoo. The answers range +- 0.5, sometimes even more. The inputs are: $S$ (...