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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3answers
3k views
How should I calculate the implied volatility of an American option in a real-time production environment?
There are many models available for calculating the implied volatility of an American option. The most popular method, employed by OptionMetrics and others, is probably the Cox-Ross-Rubinstein model. ...
9
votes
2answers
2k views
How to derive the implied probability distribution from B-S volatilities?
The general problem I have is visualization of the implied distribution of returns of a currency pair.
I usually use QQplots for historical returns, so for example versus the normal distribution:
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7
votes
2answers
644 views
How to calculate the most realistic historical option prices with additional publicly available parameters
This is a follow up question of this one.
My aim is to create the most realistic historical option prices possible with publicly available data. I want to do this for backtesting purposes.
The ...
5
votes
2answers
579 views
Constructing an approximation of the S&P 500 volatility smile with publicly available data
Besides of the VIX there is another vol datum publicly available for the S&P 500: the SKEW.
Do you know a procedure with which one can extrapolate other implied vols of the S&P 500 smile with ...
5
votes
2answers
787 views
How to extrapolate implied volatility for out of the money options?
Estimation of model-free implied volatility is highly dependent upon the extrapolation procedure for non-traded options at extreme out-of-the-money points.
Jiang and Tian (2007) propose that the ...
5
votes
2answers
558 views
Recommendation for a library to calculate the local volatility surface?
I'd like a library to calculate the options local volatility surface, i.e. the options implied volatility surface for a collection of strikes and their bid/ask prices.
Here are the libraries I've ...
4
votes
2answers
455 views
SKEW and VIX relations?
My question is about the CBOE published index VIX and SKEW.
To start with, I consider working on the variance dynamics. I calibrate the market data (such as VIX and VIX futures) into the Heston ...
10
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7answers
2k views
Why does implied volatility show an inverse relation with strike price when examining option chains?
When looking at option chains, I often notice that the (broker calculated) implied volatility has an inverse relation to the strike price. This seems true both for calls and puts.
As a current ...
