Questions tagged [implied]

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4
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1answer
161 views

Implied interest rate using put-call parity

In the process of asking this question, I acutally found the solution. I still let this post open if it can be interesting to someone else and have added a related question at the end. I want to ...
2
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1answer
131 views

How to quantify the Variance Risk Premium (VRP) with probability density functions?

The VRP is usually displayed by charts like this one: It's easy to see that, for most of the time, options are priced by using volatility which will reveal itself larger than the realized one. So VRP ...
4
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0answers
144 views

Model-Free Option Pricing

From Breeden and Litzenberger (1978) and subsequent work, we may find the risk-neutral density $q_{S_T}$ of $S_T$ from European option prices - assuming there are enough traded options (e.g. SPX) via ...
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2answers
101 views

CDS, default probability and bond price

When we calculate the implied default probabilities from CDS, can we use that information to price bonds? I am getting familiar with Fixed Income. I saw textbooks using implied default probabilities ...
3
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2answers
279 views

How to calculate implied correlation via observed market price (Margrabe option)

I can't seem to figure out how to do the following: compute the implied correlation $ρ_{imp}$ by using the observed market price $M_{quote}$ of a Margrabe option, and solving the non-linear equation ...
3
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1answer
97 views

Inherent volatility of selling longterm options and buying short term options

A two-month option has an implied vol of 60%, the corresponding 2-year option has an implied vol of 34%. You buy the short terms and sell the long terms. What is the inherent volatility of the total ...
3
votes
1answer
385 views

Implied Equilibrium Returns Example

I've been trying to work through a simple example using A Step-by-Step Guide to the Black Litterman Model, but I'm having trouble understanding implied risk aversion. Say I have two uncorrelated ...
0
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1answer
461 views

Implied AUD Interest Rate from USDAUD FX Swap and USD Interest Rate

Can someone help me understand how to derive the implied interest rate or spot rate in BBG FXFA? I actually get why the Forward rate, F_Ask and F_Bid are derived using the formula in the picture. ...
1
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0answers
126 views

Can prediction of realized volatility for next day improve delta hedging (gamma scalping)?

Im quite confused. As I understand from standard delta PNL of option + underlying position, pnl is equals to difference between realized and implied vol weighted by gamma. However, as I understood, ...
1
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0answers
206 views

Forward implied vol vs Instantaneous vol

In the Discrete Stochastic Implied Volatility Model which is from the standard Heston Model, the model shows the evolution of forward implied volatilities with time. I thought forward implied ...
2
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0answers
170 views

Extrapolating implied dividend yield

I have liquid option quotes for 1, 2, 3 and 4y expiries. I was able to imply the continuous dividend yield for all of those. How would you extrapolate such implied yield to 5 and 6y expiries?
0
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2answers
128 views

Can I use implied volatility of stocks to predict the next days or weeks top 10 gainers and losers?

Is it true if I said that the stocks with the highest implied volatility for its options with just one day to expiration today will inadvertently be the stocks with the largest price movements on the ...
0
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1answer
99 views

What vol to use when implying strike from delta?

I have a set of implied vols in delta space and want to derive for each delta the corresponding strike. I understand the procedure, but I am not sure what implied vol I should use, whether this has to ...
3
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0answers
355 views

Why is Bachelier implied volatility more skewed than the Black-Scholes implied volatility?

I found the following explanation in a paper by Grunspan (see attached paper page 6) but have trouble understanding it: By differentiating Formula (3) with respect to m, it turns out that the ...
3
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0answers
191 views

Implied correlation

Have I understood it correctly if the standard way to calculate implied correlation is the Gaussian Copula model where we: Calibrate the underlying portfolio to get a homogenous default probability ...
0
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2answers
4k views

EUR Implied Forward Rate from Bloomberg

does anyone know about the EUR Forward Implied 3 Month Rate published by Bloomberg on the Bloomberg Page EURI3M ? First question: this is the rate from a forward curved, forward curve being ...
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0answers
731 views

ATM-implied volatility

I am trying to understand the methodology that researchers used to compute ATM-implied volatility with real data. The problem is giving the discrete sets strike prices of one particular option with ...
8
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2answers
399 views

Confusion with volatility smiles implied by different models

I am reading a book "The concepts and practice of mathematical finance" by Mark Joshi. In Chapter 18 he discusses the shapes and dynamics of smiles under different models. I do not understand what is ...
3
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2answers
443 views

What does implied volatility means for different call and put strike prices?

Why there different implied volatility for different strike prices?, Can plz someone explain to me? I am pretty new to options. Thanks in advance
1
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2answers
493 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 ...
1
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2answers
634 views

Black Scholes Implied Volatility -> Put call parity

The theory says that the put and call with the same maturity and strike have the same volatility. I have been resolving the Black Scholes equation after IV using equity and fx market data and I can ...
1
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1answer
228 views

Connection between implied volatily and implied probability

I am reading some lecture notes about Black-Scholes (BS) option pricing. Since the BS-formula is not supported by observed data because of the dependence of the implied volatility on the strik and ...
2
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3answers
2k views

forward implied volatility skew

I would like to calculate implied forward volatility skew. I have stochastic volatility monte carlo. What kind of payoff do I need to price and how to use Black() formula to calculate the implied ...
0
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1answer
647 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 ...
3
votes
1answer
2k views

Implied probability density (Question 2 - Applications and Interpretation)

Using the second derivative of the Call-Option-Price one can try to recover the pricing density. Formally: Assuming a constant interst rate $r$ and also not making any assumptions on the model ...
2
votes
1answer
4k views

Implied state price density (Question 1 - derivation of the formula)

I came upon the term "implied state price density" in a couple of papers. As far as I understand the concept one basically tries to extract the "pricing density" from the market data. For the sake ...