Questions tagged [implied-volatility]

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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Eurodollar futures volatility

Considering each point is 2500, how can I get the volatility of the jun 24 contract? On tastyworks I'm seeing a 0.7% iv for the contract, how can I translate it to standard deviation? Ex:sp500 15%...
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Interpreting Implied Volatility in Commodities Options

I understand that implied volatility is the expected volatility of an underlying contract in the Black option pricing model. This is easy to interpret for assets delivered at a point in time. But how ...
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Can gamma of an option be greater than its delta?

I have a currency pair usdinr put option with strike price at 73.5 INR, risk free rate 0, underlying price of 75.4025, days to expiry is 15 and iv is 5.9%. Delta of this option is -0.019 and gamma is ...
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Volatility Spreads, what type is described? [closed]

I am not sure what the difference is between historical volatility(HV) and realized volatility(RV). However, I know that the implied volatility(IV) of an option is the expected volatility of an ...
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is implied volatility derived from the option bid quote or the option ask quote?

I got SPX option prices from three different market data sources. In all of them, I can see bid and ask quotes. However, there is only one implied volatility. Does this implied volatility correspond ...
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Converting the American option price into the European one [closed]

I wish to calculate the European price of individual equity options. For the purpose, I employ the Black-Scholes formula and use as an input implied volatility provided by the Optionmetrics. However, ...
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Why calibrate vol based on consensus?

I am starting to work on building vol surfaces using implied vols on the short run mixed up with consensus vols ran through a whole bunch of interpolation/calibration/smoothing process. Although I ...
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132 views

Rogers Satchell Volatility

I am trying to implement Roger Satchell volatility in Go, but my results do not match reality... I have been at this all day, but cannot find my error. The 30 day Rogers Satchell vol is at 8.75%, but ...
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Volatility basics: what happens to implied volatility of stock in week of earnings and dividend payment?

Question: Imagine it is a Monday. Company A (stock you are following) has an upcoming dividend payment on Wednesday and an earnings announcement on Thursday. Company A stock is currently trading at \$...
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How is Emanuel Derman's implied tree model implied volatility skew derived?

I am reading Emanuel Derman's paper Patterns of Volatility Change. The section, Implied Volatility In The Sticky Implied Tree Model has the linear skew approximation near the old underlying $S_0$ $$\...
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Local volatilty models for fixed maturity curves with sparse equity data

I'm implementing an options analytics platform - with sparse market data going out a few months. Mostly equities and fx options. Building a fixed maturity curve like the one on quikstrike by bantix is ...
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Best way to measure time to expiration for options?

From my reading it seems that only trading days should be accounted for when calculating time to expiration. On the other hand, I see that VIX is calculated using every day until expiration without ...
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How to build a volatility surface for caps from the SABR model?

My end goal is to build a volatility surface for caps. It's well known that SABR model has Hagan approximation formulas for log-normal and normal implied volatilities of options, e.g. caplets, ...
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156 views

Put-call parity on SPY

I'm currently trying to model the IV curve for calls and puts on SPY using the Black-Scholes model with dividends. I'm able to calibrate the risk-free rate and dividends so that both ATM IVs match, ...
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157 views

Swaption ATM Vol Quotes and Interpretation: Normal Vol to Black

How do you interpret the time-series of 1m10y black vol vs normal vol? Normal vol would have you believe, that rate vol has since 2000 been low whereas black vol would show you a different picture. ...
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Vol, Gamma, Vega -- essentially all the same?

When talking to traders I hear this sentence a lot I am a buyer/seller of X where X = {vol, gamma, vega} Is X basically all the same -- they are just saying -- I think implied volatility is cheap or ...
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Method to retrieve implied density for a mixture of local volatility model

Given a mixture model of two local volatility models, the price for an option is given by: $$V(K,T) = p V_{loc1}(K,T) + (1-p) V_{loc2}(K,T)$$ where $V_{loc}(K,T)$ is the price of the option given a ...
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Calibrate 1-factor Gaussian HJM model on forward rates and ATM caps prices

I'm trying to solve the following problem as a part of the Interest Rate Models course The algorithm that I'm following is derive simple rates from the given forward rates via $L(0, T_i) = \frac{(1+\...
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53 views

Inverting the Black formula for Cap price to find Black implied volatility

I'm solving the following problem as a part of Interest Rate Models class on Coursera I'm having a hard time using nonlinear root solver to invert the Black formula for Cap price in order to obtain a ...
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35 views

Spot-Vol Correlation ITM Receiver Swaption

I am new to the term Spot-Vol Correlation. As far as I understand it describes the "relationship" between the spot rate and the implied volatility. So I heard when we are ATM it means that ...
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Computing the Variance Risk Premium

The Variance Risk Premium (VRP) is defined as: $$VRP(t,t+\Delta t) \equiv RV(t,t+\Delta t)^2 - IV_t(t,t+\Delta t)^2$$ where $RV^2$ is the realized variance between $t$ and $t + \Delta t$ and $IV_t^2$ ...
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Early expiry option implied volatility

I’m new to this forum so first of all I wanna welcome everyone here. I am a commodity trader, mostly covering option books (vanilla and structured one) and I would ask more expert people how they can ...
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55 views

change in implied volatility with respect to change in spot

It's clear that IV increases as spot decreases, and vice-versa. In pricing an option, is there any model that is useful in estimating the change in IV with change in spot price? For example, if the ...
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Compare rich / cheap options on 2 underlyings

this question can turn out to be very basic but its something that has been bugging me. Say I want to buy/sell an option on A vs sell/buy an option on B. Facts I know A and B are different ...
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141 views

Expected stock price range using implied volatility calculated by Black-Scholes

What's the correct way to calculate the expected stock price range using implied volatility, without the simplifying assumption that the stock price follows a normal distribution?
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IV on FOP (futures options) being higher than IV on equivalent ETF

I've been observing that options on /es has a higher IV than the options on SPY even though they're both tracking the S&P 500. What causes this? Doesn't this mean that the options on /es is more ...
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Why does volatility increase the expense of delta-hedging?

Consider someone that writes a call, and wishes to delta-hedge against it to remain delta neutral. For this to be profitable, the price they sell this option for should be greater than or equal to the ...
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Filtering options for IV surface and construction for cryptocurrencies

I'm new to quant finance and currently working on my first project.I'm trying to construct the Implied volatility surface for cryptocurrencies from deribit ( as options from deribit are the most ...
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433 views

Effect of Implied volatility on option delta

I am currently hedging a short put option where strike is 6027 and expiry is 30th Mar 2023. As per my understanding when option is ITM increase in volatility will decrease the delta and decrease in ...
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Overestimation of the implied vol of a delta hedge option

Considering the following example : A bank sells a 1y european option with a 20% implied vol. The option is delta hedged until maturity and it turns out the realized vol on this period was actually 12%...
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Fitting parameters given an inverse function. (Orosi, 2015)

In trying to replicate Orosi's (2015) 5-parameter implied volatility model, but I can't wrap my head around the parameter fitting procedure Orosi proposes. My main goal is to calibrate the model to my ...
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Do single name stock option volatility surfaces exhibit steeper volatility smiles after stock price crash episodes?

In index options, there was not much of a smile (on the put-side) until the 1987 market crash. I'm wondering if the same applies to single name stocks? That is, do price crashes in individual stocks ...
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Martingale proof: Call-prices must be increasing in maturity

I have observed that IV is increasing with time to maturity by using market prices and plotting IV (from Black-Scholes) against log-moneyness, $\log(S_t/K)$. $S_t$ being the price of the stock at time ...
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Black-Scholes: Volatility Smile "sharpens" with time to expiry

I have tried to calculate IV and log-moneyness (=log(S/K)) for different times to expiry (M = less than 1 month, Q = less than 1 quarter, S = less than 1/2 of an year, Y = less than 1 year, Y (+) = ...
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Is $C(K,S_t)$ a (local) martingale if PCS is broken?

When put-call symmetry holds $$ P(S_t,K) = C(K,S_t) = \frac{K}{S_t} C \left( S_t, \frac{S_t^2}{K} \right) $$ where $P$ is the market price of a put option and $C$ is the market price of a call option. ...
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What is "level" and "term" in Derman figures?

Im doing my final thesis about implied volatility. In the last section I am talking (not too much deep) about volatility surface. Im using the figure below to show the differences between the real ...
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235 views

Why is implied volatility often higher for OTM/ITM european call options than ATM? [closed]

I am working on some Black-Scholes stuff and currently investigating implied volatility (IV). I understand that the typical volatility smile can be viewed as a criticism of the assumption about ...
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When are parameters calibrated using one option type applicable to price other option types on the same underlying?

I am coding up some basic models to show prospective employers, but I am forced to guess "what is done in practice" since I don't yet work in the industry. I am implementing various ...
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317 views

Realized Variance (realized volatility)

I'm confused about realized variance. I roughly know the theory around Ito Calculus and quadratic variation and integrated volatility so I understand what realized variance measures (even though as ...
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Implied volatility and realized volatility

There are many articles and posts here claiming that the implied volatility is the expectation of future realized volatility. I don't understand. To begin with, isn't implied volatility homogeneous to ...
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Bates Model on Quantlib

I am actively trying to price an option using bates model on Quantlib.However,when I input my volatility I find the same Black Prices with the basic Heston Model.I wanted to know if my code was right. ...
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CEV Model Pricing-Implied Volatility Surface

I am trying to validate a local volatility model (Dupire) and I was told to do the following in order to validate it. With a deterministic model as it is the CEV model, I have to price several options ...
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Realized volatility calculations from real dataset

I am working with a dataset from: http://web.math.ku.dk/~rolf/Svend/ named data 1. I'm currently setting up a delta hedge for periods of 3 months. So currently we are starting at the start data of the ...
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Volatility surface interpolation for Black-Scholes delta hedging

A general question for interpolation method for implied volatility between tenors. I've recently stumbled accross a dataset from http://www.math.ku.dk/rolf/Svend/, and I would like to interpolate the ...
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Does fear or greed drive option prices?

Frequently we hear that implied volatility being higher (as measured by VIX) indicates fear in the stock market. It is assumed that investors buy more puts for downside protection, driving put option ...
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No-arbitrage bounds on Implied Volatility under Black-Scholes

Suppose the overnight (1-day) at-the-money implied volatility is X% and the two week (14-day) at-the-money implied volatility is also X%. How would I go about finding the upper and lower no-arbitrage ...
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How to price a call option with long maturity (5 to 10 years)

I am trying to find the industry accepted method on how to price a long term American call option (maturities 5 to 10 years) on an underlying which is an accumulation fund (so no dividend payouts) ...
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Differences in implied volatilities of warrants and options

I have another question regarding the implied volatilities of warrants: When it's said they are overpriced compared to classical options, that means their implied volatility is higher than for similar ...
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popularity of MOVE volatility index vs. (strikeless) TYVIX indices

I have a question about rates volatility indices and how indexation around this space seems to be fractured and relatively illiquid in comparison to the explosive success of the VIX index in equities. ...
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Any research paper further studying the conclusions given by Derman Regimes of Volatility

As we know Emanuel Derman mentioned 3 different market conditions where sticky delta, sticky strike, and sticky implied tree are relatively best suited. Are there any relevant research paper further ...

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