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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66 views

Implied and Local Volatility relation in Monte Carlo

I am implementing a Monte Carlo engine with the local volatility model based on Dupire. Obviusly, I obtain the local volatility surface from the implied volatility surface and that surfaces has ...
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Adjusting derived volatiles using skew

Once we obtain a prediction for the future volatility using (GARCH, HARQ, etc), do we have to adjust the implied volatility dependent on the strike price. How would we incorporate a skew versus a ...
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SABR Model and Adjustements to implied volatilies

After finding the volatility using a SABR model; does one need to readjust the volatilities accordingly to the different strike prices and skew. Intuitively, if the SABR model incorporates the ...
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62 views

Calibration Heston Local Stochastic Volatility (LSV) Model

The Heston Local Stochastic Volatility (LSV) model has the following dynamics: $$dS_{t}=r S_{t} d t+L\left(S_{t}, t\right) \sqrt{V_{t}} S_{t} d W_{t},$$ $$d V_{t}=\kappa\left(\theta-V_{t}\right) d t+\...
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Do simulated values for IV need to be linked to the simulated series of underlying prices when used together in a Monte Carlo Simulation?

I've been using thousands of simulated stock price series generated with mean and standard deviation of daily returns and Geometric Brownian Motion, and then running these simulated price series ...
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Converting Historical Volatility to Implied Move

I am trying to calculate an implied one-day move value for an instrument given its historical volatility. While I am familiar with this formula for implied volatility to implied move: and intuition ...
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39 views

What is the correct volatility to use for inverting Black76?

I'm using VCUB on Bloomberg for ATM cap volatilities and have noticed there are a few "flavors" of volatilities. I would like simply use ATM flat vols to bootstrap forward volatilities from ...
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Log Moneyness vs Log Strike

In How to calibrate a volatility surface using SVI, is said: "(log-moneyness would be more accurate) ". First, why do we talk about "moneyness", is it a reference of "being in ...
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Local Vol from Implied Vol formulas different

I am wondering why "LOCAL VOLATILITY MODELLING Roel van der Kamp July 13, 2009" (formula 2.23) has a different numerator compared to "The Volatility Surface. JIM GATHERAL" (formula ...
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120 views

Is implied volatility really all that usefull?

I take implied volatility as the positive floating point number which lets the BS formula match an observed option price (assuming we have some useful interest rate, some underlying, etc). How useful ...
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62 views

Theoretical and practical drawbacks of using Deep Learning for calibration and pricing

I am investigating the suitability of using deep learning for pricing and calibration for the full implied volatility surface. Such examples of their application are in papers here and here. During ...
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Problem with implementing a implied volaitility function in R

I am new to programming, and I have been exposed to the basic of R and Python. I have been trying to implement the volatility smile function using a unit root function(a traditional procedure) but I ...
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Calculation Option Greeks per day using Quantlib

I'm trying to calculate option greeks and impVol for a series of European index options (they are in a DataFrame) using QuantLib. Is there a way to get the Greeks and impVol on a daily basis? Thank ...
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Understanding the BAML MOVE index

Hello quant community. I am looking for more information about a very interesting index: BAML-ICE MOVE index. There is very little literature online that details how the index levels are calculated ...
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How does VIX interpolate implied volatilities?

In the CBOE VIX white paper (direct link to PDF), it is explained that once the implied volatility of the near and next-term options $\sigma_1^2$, $\sigma_2^2$ are found, the constant-maturity 30-day ...
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Intuitive explanation for the value of a binary option being lower when volatility skew is positive?

According to the formula for pricing binary options with a volatility skew, it appears that the value of the binary option for a given strike gets lower, the higher the volatility skew at that strike. ...
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89 views

Real world probabilities from option implied risk neutral density?

The work of Breeden and Litzenberger-formula (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2642349) gives us a risk neutral probability distribution of a stock price, depending on the option ...
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Is pricing options using the volatility surface implied by the Heston model equivalent to pricing using the Heston model directly for all options?

Given Heston model parameters calibrated from vanilla put/call options it is possible to imply a volatility surface by pricing calls or puts for different strikes and maturities and solving the ...
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44 views

What's a sensible way to measure correlation in the volatility surface?

Lets say I construct a parametrisation of the volatility surface that lets me infer dynamics i.e correlation between strike vol. Is computing the sample correlation (after controlling for spot-vol ...
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69 views

About the implied volatility as average volatility over the life of an option

The first time I read about local volatility, implied volatility turned out to be the average volatility from today to the option's expiry date. Let we have two Call options, $C_1$ and $C_2$, expiring ...
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Implied Volatility - Underlying vs Monthly Expiration vs Individual Options

I'm working on calculating implied volatility for historical options data taken from the tradier api. I'm using Davis Edwards fantastic python implementation of options pricing models to get ...
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150 views

Black Scholes implied vol of SVJ model

Under the SVJ model https://en.wikipedia.org/wiki/Stochastic_volatility_jump, what is the formula of the Black Scholes (log-normal) implied vol for an option with strike $K$ and time to maturity $T$ (...
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81 views

Correlation between assets used for valuing multi-asset options (Rainbow options, basket options etc.)

Is there an equivalent to implied volatility used when it comes to modelling correlation in option valuation for multi asset options such as rainbow options (best-of/worst-of calls/put), or is the ...
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How much does a rise in volatility in a short-term option affect a longer-term option

How would a rise in implied volatility on a short-term option affect the implied volatility of another short-term option with the same strike, but with slightly-longer expiry? Assuming that the short-...
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Which one would give me more accurate implied volatility Bloomberg or superderivatives?

I am looking for pricing some options using implied volatility provided by either Bloomberg or superderivatives. So which one would provide me with accurate vols so when the options that I have priced ...
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56 views

Why might Implied Volatility continue stay elevated even after binary event?

After the Georgia Senate runoff results were called today (Jan. 6, 2021), I had expected the IV on many election-related tickers to fall. In other words, I thought a major IV crush was in the cards. ...
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82 views

Implied volatility model-free

I know that $\operatorname{IV-model \space free}=2 \int_{0}^{+\infty}\frac{c_0(T,Ke^{r(T-t)})-c_0(t,Ke^{r(T-t)})}{K^2}\operatorname{d}K$ is calculated using an iterative procedure, i.e. setting a ...
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Practical Effect of Time-Decay on Variance Swaps?

I want to implement a long vol hedging strategy by rolling spot variance swaps every month. This would be done through replicating spot VIX using the definition of VIX as a portfolio of OTM one-month ...
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132 views

Does shifting/scaling the IV surface relatively/absolutely introduce arbitrage?

I am fitting a volatility surface for vanilla call options. I do this by fitting low-degree polynomials (or cubic splines) along the strike dimension per maturity and then linearly interpolating ...
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102 views

Warrant volatility surface differs for each issuer

I have written a rudimentary program for fitting volatility surfaces for warrants of call and put options for the purpose of some basic scenario analysis. In my country, trading options privately in a ...
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108 views

Implied Gamma VS Implied Volatility

Reading this paper, I'm struggling to understand what the author is saying with paragraphs below (see pages 39-42): We define Implied Gamma ($\Gamma_{\operatorname{implied}}$) as the value of the ...
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SPY volatility from option chain

How to get volatility of SPY from its option chain(only put and call option price with different strike price). I use Black Schole model to get the implied volatility, but seems like SPY is American ...
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What are the input/parameters into Peter Jäckel's Implied Volatility functions?

I read the paper as well as a related GitHub project's Home page and the LetsBeRational.py source file, which details functions such as: def implied_volatility_from_a_transformed_rational_guess(price, ...
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How to interpolate implied swaption volatilities between maturities for SABR?

I want to interpolate the swaption volatility surface (fixed tenor) in the maturity dimension. I have volatility smiles at times T1 and T2, and would like to get the smile at time T with T1<T<T2 ...
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Which volatility should I use in a long-term futures swaption?

Consider an option expiring in 12/31/2023 on an hourly swap from 2024 through 2029 such that: a) I pay the floating price of electricity and b) receive $20 in return. Using shaped monthly futures and ...
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Volatility surface of daily contracts from ATM volatility of quarterly contracts

I'm trying to estimate the volatility surface of an especially illiquid options market; only ATM quotes are available (so Vanna-Volga approximation is not viable) for options on quarterly futures for ...
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Compare equity option volatility under SOFR vs LIBOR

We know that after the big bang from LIBOR to SOFR, LIBOR will eventually disappear. This brings up one question that I do not have a clue to answer: How to evaluate derivative in a consistent manner ...
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61 views

How does a concave up volatility smile correct high kurtosis for ATM option contracts?

Theoretically speaking, if we are to assume the following: Constant implied volatility throughout all strike prices The underlying's prices change distribution is log-leptokurtic and symmetric Then ...
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How to interpolate on an implied volatility surface based on forward moneyness?

Should be a simple matter, but perhaps I'm misunderstanding something fundamentally. Look first at the below image of the BVOL surface from Bloomberg, to my understanding from looking at the white ...
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97 views

Is there a Dupire's Formula for put options?

Generally, Dupire's formula is taking derivatives on the call option prices. Here it only uses information of the call options. If now we have the data including both call and put options, is there a ...
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Arbitrage Free Interpolation of Implied Volatility on Time Dimension

I’m working on a project to build a local volatility model out of implied volatility data and I’m currently testing the no-arbitrage version of SVI model as described in this paper Section 5.1 [...
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589 views

Bergomi: Skew arbitrage

In his paper "Smile Dynamics IV" (https://www.fields.utoronto.ca/programs/scientific/09-10/finance/derivatives/bergomi.pdf) as well as in his book "Stochastic Volatility Modeling" (...
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Question About SVI and SSVI Tradeoff between Fitness and No-Arbitrage

I’m currently working on a project to build a local volatility model out of implied volatility data and am struggling in the selection of an appropriate method to interpolate the volatility surface. I ...
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157 views

Annualizing intraday volatility

I've been experimenting with end-of-day volatility-based stock trading strategies and I'm looking to see if it's possible to use similar strategies over shorter time frames. Given that market ...
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Valuation of Corridor Variance Swaps

Given that the payout of the Corridor Variance Swap (CVS) is $V \left(\frac{\sum_{n=0}^{N}I}{T_2 - T_0} (\sigma^2 - K^2) \right)$, where $\sigma^2$ is the realized variance within the pre-specified ...
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Entropy-implied volatility requires itself to be calculated?

\begin{align} H &= \frac{1}{2} \ln (2\pi\sigma^2) + \frac{1}{2}\\ &= \frac{1}{2} \ln (2\pi e \sigma^2) \end{align} is the analytical solution for the entropy of a Gaussian random variable, ...
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Seed Values guaranteed convergence of Implied Volatility Calculation

Looking for good seed values for Newton Raphson to guarantee convergence of implied volatility calculation for a few models, all of which are for equities that have divs. 1) Bjerksund-Stensland 2002; ...
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70 views

Sensitivity to changes in the volatility

I have a sample payoff function shown below: How do I find a formula which gives the sensitivity to changes in the volatility of the underlying stock. In other words, I want to find a formula for $\...
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Can we model Implied volatility using GARCH?

Can I use Implied volatility as a dependent variable in a GARCH model? I believe my IV data shows ARCH effects and hence can I use it to model volatility of the volatility? I know literature has used ...

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