When pricing an European vanilla option in a Black-Scholes world with deterministic volatility term structure, what matters is the remaining variance between today $t$ and maturity $T$, i.e. the volatility parameter to use in the BS formula is $\sqrt{\int_t^T \sigma^2(u) du} $.

Is there an option where not only the future volatility, but also the realized volatility from some time in the past, say time $0$ is part of the input parameter? So for instance an option where the implied volatility parameter at time $t$ would be $\sqrt{ \int_0^T \sigma^2(u) du }$ ?

  • $\begingroup$ What kind of kindergarten nonsense is this +1/ -1 voting possibility for a question asked? $\endgroup$ – ilovevolatility Jan 9 at 0:52

Your Answer

By clicking "Post Your Answer", you acknowledge that you have read our updated terms of service, privacy policy and cookie policy, and that your continued use of the website is subject to these policies.

Browse other questions tagged or ask your own question.