1
$\begingroup$

When we are calculating deltas or vegas for different strikes should we use the underlying asset's volatility or should we use the implied volatility for the specific strikes at a fixed maturity?

Is there a book or blog where I can learn about the actual models used in option backtesting or trading platforms( in R / python) instead of the normal theoretical ones ?

$\endgroup$
0
$\begingroup$

Re your first question: Use the implied volatility $\sigma_{imp}(X,\tau)$ for strike $X$ and expiry $\tau$.

The option price, and hence the implied volatility, is driven by the options markets. Your option model should first and foremost be able to replicate observed option prices (hence, you plug in implied vols).

| improve this answer | |
$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.