0
votes
1answer
62 views

Constructing Volatility Smile from Implied Volatility & Delta

I have implied volatility data for call and put options (expiring in 1 month from any given date) for a particular stock. In addition, I have the delta for the options. However, I have no information ...
1
vote
1answer
216 views

How does Volatility Pairs Trading work?

I've read some material related to pairs trading for equities and I understand the process of finding non-stationary pairs price series that can be cointegrated to form a stationary series. The basic ...
0
votes
0answers
53 views

Negative Risky vs Negative Butterfly

I understand that in regard to FX options, a volatility smile with negative Risk Reversals is effectively indicating that the spot market for a given currency pair is in decline (puts over). In ...
0
votes
1answer
30 views

Common point between IR and Vol option pricing models?

What is the common point between pricing models on options on Interest Rates and options on Volatility?
1
vote
0answers
81 views

Adjusting for variance bias when using overlapping data

I'm in the process of constructing volatility cones for several assets and I want to make sure the data is free of biases. I know that using overlapping data introduces an artificial degree of ...
1
vote
1answer
112 views

Price volatility and yield volatility

This question is a bit confused, but please bear with me. Now and then I see people use the terminology "price volatility" and "yield volatility" in connection with bond options. I understand the ...
1
vote
1answer
105 views

Volatility tools / web sites?

Could someone give recommendations regarding volatility tools / web sites that they find useful? I am looking for information that my brokerage platform does not provide. Specifically, I want to see ...
0
votes
0answers
133 views

Monte Carlo American Option Pricing under GARCH(1,1) volatitliy

I am attempting to price a couple of at-the-money American option using the LSM algorithm and GARCH(1,1) volatility. The LSM code I have works correctly for constant volatility, however, when I switch ...
1
vote
2answers
586 views

Delta Neutral / Gamma Neutral Positions

I've been trying to find out more about options positions which are both delta neutral and gamma neutral--created with some kind of calendar spread. Supposedly, such a trade will be perfectly hedged ...
2
votes
0answers
153 views

Does Bakshi, Kapadia and Madan (2003) VIX building approach underestimate volatility?

From a paper that shortly addresses an alternative approach to VIX-like index building: To test this approach, I've built a fake book of B&S options with constant volatility equal to ...
2
votes
3answers
168 views

Why are short expiries associated with more pronounced volatility skews?

I've noticed that for a given strike price, the shorter expiration dates of options have more pronounced volatilities why is that?
3
votes
1answer
253 views

what's the relationship between forecasted stock volatility and implied volatility?(option)

what's the relationship between forecasted stock volatility and implied volatility? I know that implied volatility is the volatility calculated by BS formula, is there any relationship between implied ...
0
votes
0answers
110 views

Log returns and time

In calculating realized/historical vol for fx spot, my samples/fixings are currently every minute. I need to be able to calculate and plot historical/realized vol on demand from spot prices. ...
7
votes
2answers
246 views

Extrapolating implied volatilities to small time

Could anyone please direct me to literature or methods for extrapolating the implied volatility surface towards small expiry? I'm looking to price very short time to expiry binary options (e.g. 5 ...
0
votes
0answers
27 views

explanation for preference of volatilities in option premium quotes [duplicate]

could any one suggest an explanation for why premium in option markets (currency or otherwise) are quoted as volatilities rather than (premium/abs(spot price - settlement price)) or some other ...
0
votes
3answers
798 views

How to calculate return rates with negative prices?

I'm dealing with electricity options and I'm considering the possibilty of negative prices. I want two estimate the historic volatility. However, an arithmetic mean doesn't feel appropriate and ...
4
votes
4answers
2k views

How to calculate the implied volatility using the binomial options pricing model

I want to calculate IV for american options with dividends. So far I have found algorithms to calculate the option price given a volatility. Please can you point me to paper or implementation (R, ...
4
votes
2answers
2k views

Why FX Vanilla Options are quoted in volatility

I've been curious why vanilla options are quoted (and traded) in terms of volatility. Considering that every financial institution has its own options pricing model, volatility as an input would cause ...
2
votes
1answer
661 views

How to calculate implied volatility and greeks in Bull Put Spread option strategy?

Ok, obviously I am buying lower strike put and selling higher strike put. What is the recommended volatility and greeks to consider in my trade? Volatility: Average volatility between both legs? ...
5
votes
2answers
984 views

VIX = Vega of S&P500 options?

ok, so let assume I can predict the daily change in the VIX itself (in points) every day. what would be the best way to play this with OPTIONS? well, obviously VIX options, but if I can look at the ...
1
vote
1answer
128 views

Brent Crude Data

I am trying to locate historical volatility data (5+ years) for Brent Crude? Does anyone know where I might be able to source such data?
3
votes
1answer
615 views

Science behind options pricing into Earnings event

I am wondering about studies regarding the uncanny options pricing into public company's earnings reports. The phenomenon being that the price of a straddle before earnings costs near exactly the ...
6
votes
3answers
2k views

What really drives option implied volatility?

A common and oft repeated belief regarding options volatility is that implied volatility increases due to people bidding up a contract, usually related to anticipation of the outcome of an expected ...
1
vote
1answer
330 views

Calculate historical (ATM) option prices with public data

I just saw the question How to calculate the most realistic historical option prices with additional publicly available parameters and I am interested in the step before that. How can I calculate ...
4
votes
1answer
659 views

Can American options with no dividends and zero risk-free rate be treated as European?

Let's say you've got American options on a future of a stock index. There are no dividends, and no risk-free rate either (assume $r=0$). Can these options then be treated as European from the ...
5
votes
2answers
998 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 ...
6
votes
1answer
396 views

How sensitive are vertical spreads to changes in implied volatility?

How sensitive are vertical spreads to changes in volatility / implied volatility in the money, at the money, and out of the money? I'm thinking for 1 point spreads this would be very small / neutral ...
7
votes
2answers
1k views

What does the VIX formula measure and how does it work?

I have read the CBOE's white paper on the VIX and a lot of other things, but I need to honestly say, I don't really get it, or I am missing something important. In semi-layman's terms, is the VIX ...
15
votes
5answers
3k views

Skew arbitrage: How can you realize the skewness of the underlying?

It's not clear to me how to realize skewness. In other words, how do you implement skew arbitrage? There seems to be no well-known recipe like in volatility arbitrage. Volatility arbitrage (or ...
8
votes
3answers
2k views

How does volatility affect the price of binary options?

In theory, how should volatility affect the price of a binary option? A typical out the money option has more extrinsic value and therefore volatility plays a much more noticeable factor. Now let's ...
7
votes
1answer
1k views

How should I estimate the implied volatility skew term when calculating the skew-adjusted delta?

I'm trying to come up with the implied volatility skew adjusted delta for SPY options. I'm working with the following formula: Skew Adjusted Delta = Black Scholes Delta + Vega * Vol Skew Slope. I ...
3
votes
0answers
184 views

What is the longest number of consecutive days that options implied volatility has stayed “extremely high” for any particular underlying?

Curious as to whether or not there is any sort of all time record. Any index, future, or stock will do. Volatility must be well above the average 1 year volatility for all periods.
4
votes
2answers
788 views

How to derive appropriate volatility for a binary option (with strike/term) from market data?

I am valuing a binary FX option (european) with a defined strike and term (2Y). I'm using a closed form solution based on Black-Scholes framework. How can I derive the appropriate volatility to use ...
9
votes
1answer
335 views

Appropriate measure of Volatility for economic returns from an asset?

I am doing research on uncertainty analysis and risk assessment for oil field development. For doing economic forecast and valuation I use Real Options theory, which is almost similar to theory used ...
6
votes
1answer
466 views

What is the best method to compute project volatility in Real Option Valuation?

There are few methods like Copeland-Antikarov, Herath-Park, Cobb-Charnes etc. to compute project volatility, however these methods compute upward biased volatility. What is the best method I could ...