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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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Implied volatility as a function of Stock price [on hold]

Denote $\sigma(S_T)$ the implied volatility for a call option with expiry $T$ and $S_t$ is the underlying asset process. Then $\sigma(S_T)$ is a random variable and I want to know how Var$\sigma(S_T)$ ...
3
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1answer
77 views

Realized volatility forecast vs Implied volatility

I have forecasts of realized volatility, as well as implied volatility for individual traded options of the S&P500. I want to simulate a simple trading strategy; that is, buy signal=1 if ...
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1answer
55 views

Calibration of parameters of implied vol smile

Here is the book Foreign Exchange Option Pricing: A Practitioner’s Guide, p.56 by Clark (2015). The context is a little bit long. I summery my understanding as follow: We first assume the form of ...
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34 views

Wrong understanding of implied vol cannot be linear interpolated

There is a well known conclusion that implied vol cannot be linear interpolated. But I am not sure this interpolation is for ...
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0answers
65 views

Linear interpolation of local vol no arbitrage

We already know the equivalence between local vol, implied vol and option price and there ...
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1answer
70 views

Implied volatility for American options- time to expiration?

I am trying to compute the implied volatility of the OBM contract (on Euronext), using R, and I was wondering if, for the time to maturity, I should put the time until the contract expires or the time ...
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0answers
42 views

Straightforward question about paper on Arbitrage-Free Smoothing of the Implied Volatility Surface

In the paper Arbitrage-Free Smoothing of the Implied Volatility Surface by Matthias R. Fengler (2005) (https://core.ac.uk/download/pdf/6978470.pdf), if $\lambda =0$ on equation (1) then the solution ...
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0answers
61 views

Expected VIX at different levels of SPX

I'm looking for a model that computes the expected VIX based on SPX price moves. For instance, SPX is currently at around 2650, and VIX is at 24. If SPX jumps to 2600, at what level would the VIX be? ...
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75 views

Arbitrage free smoothing of volatility smile - cubic spline - implementation procedure

I am studying the paper Arbitrage-Free Smoothing of the Implied Volatility Surface, from Matthias R. Fengler (https://core.ac.uk/download/pdf/6978470.pdf). The problem I want to solve is much simpler ...
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39 views

Understanding Implied Volatility on finance.yahoo

Does anyone understand how the implied volatility reported on finance.yahoo is computed? It appears too high for all options I checked. For example, BIIB stock closed at \$300.17 today. The last ...
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1answer
43 views

Suggestions of papers for computing market implied probability distribution function

I need suggestions of papers that propose simple and fast methods (not heavily dependent on simulations, nut can depend on simulation) to derive the market implicit probability distribution function ...
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1answer
47 views

Of what use is this implied volatility formula?

From a paper I am reading, it is written These equations do not make any sense. If $s = k$, i.e. if we are pricing ATM options, then this volatility is identically zero, hence useless. How am I to ...
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1answer
115 views

Interpretation of IV and its use in stock movement prediction

I would like to validate my understanding of IV as a prediction tool. Black-Scholes model is based on the assumption that rate of return of a stock is a Wiener process: $$ \frac{dS_t}{S_t} =\mu \,...
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0answers
56 views

Computation of Future Implied Volatility Surface

I do have a question on the future implied volatility surface. The current implied volatility surface is easy to obtain, e.g using some interpolation technique on current options prices. For ...
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0answers
15 views

suggestion for NDX volatility index prior to 2000

NDX index is available since 1984 in Bloomberg. There's VXN index that represents the implied volatility of NDX, which is available since 2001. I need some index or series that represents implied ...
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1answer
52 views

Approximate Hagan formula for SABR model with negative beta

While looking into fixing the $\beta$ parameter (based the following regression: $\text{ln } \sigma^{ATM}_t = \text{ln } \alpha - (1-\beta)\text{ln }F_t$, as explained in West (2004), page 6) before ...
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0answers
21 views

Remaining variance and historical variance in Black-Scholes with term structure

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 ...
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2answers
115 views

Why do we need to calibrate vega?

I was going through some paid video on options. The tutor in the video asked the following question: Person $A$ has the following portfolio at the start of April Portfolio of options with vega $20,...
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1answer
98 views

SABR ATM volatility

The ATM implied volatility is important in SABR when calibrating the model. Let's consider the ATM vol (for a european call option): $$\sigma = \frac{\alpha}{f^{1-\beta}} \left[ 1+ \left(\frac{(1-\...
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2answers
104 views

Are there methods of calculating Implied Volatility in the stock market, other than Black-Scholes?

(I've gone through many questions/posts on quant StackExchange and only find responses about Black-Scholes)
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40 views

Calculating the implied density from the volatility smile

Suppose I have a volatility smile for a certain underlying at a given maturity. This implies a certain density for the underlying at that maturity, which can be explicitly computed, via a corollary to ...
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2answers
179 views

Interest rates forward implied volatility models

I'm trying to find out which model to use to price a pur forward volatility product named VolBond marketed by structuring desks currently. Let me introduce the products first: Example 1: You pay 100 ...
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0answers
31 views

Estimating/Rule of thumb for volatility skew from daily returns? Simple example?

Let's say I have a stock with very limited information, I have 5 days (1 weeks) of returns. It moved 0% for 4 days, and then 10% on the 5th. Let's say I assume the stock will move in a similar fashion ...
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1answer
151 views

Different versions of sticky strike, moneyness and delta

I head a lot of versions of those three concepts: sticky strike, sticky moneyness and ...
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0answers
64 views

Probability of Implied Volatility Move [closed]

I want to see the probability of Implied Volatility of an underlying moving up or down from its current position. Would it just be 50% probability of going up and 50% of it going down? Because I've ...
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0answers
41 views

What is price level dependence of volatility

I am trying to understand the term level dependence of volatility as mentioned in Pricing of options on assets with level dependent stochastic volatility. Is this same as leverage effect mentioned in ...
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2answers
179 views

Vega of exotic options

I'am wondering if there is a standard definition to the Vega of an exotic product when the underlying model is not Black-Scholes. Let me give some examples : What is the Vega if the price is ...
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3answers
523 views

Forward implied volatility

Can one price accurately by only using vanilla options a derivative that is exposed/sensitive mainly to the forward volatility ? Here are some examples : a) In equity markets : ...
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0answers
40 views

Calculating daily underlying move from options volatility?

My broker has provided a risk report that shows our options book shocked at various standard deviation moves of the underlying. Their report has the future at $66.64, ATM Vol at 23.74% with 2 days ...
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2answers
240 views

What is the difference between forward volatility swap and FVA?

Specifically looking at FX but i guess it's a general question. any good reference would be appreciated. FVAs are not mentioned in Derman's paper ("More than you ever wanted to Know about volatility ...
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0answers
47 views

Effect of Volatility Regime on Volatility Smile

For short-term FX options, I find empirically that the degree of curvature of the smile (OTM/ATM in %) is higher in low volatility environments. Similar results are found by Pena et al. ("Why do we ...
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1answer
90 views

Estimating at-the-money volatility where at-the-money option is absent from the market

I am trying to estimate the intraday ATM volatility in a market where the the strike prices are relatively sparse thus the ATM option may not exist (let's say the closest strike is about 2% away from ...
2
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1answer
49 views

Literature on quoting vol surfaces in the absence of listed option prices [duplicate]

What are some of the modern methods used to price equity volatilities "the most accurately possible" when there are very few listed derivative prices available or even none at all? Do the pricers in ...
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57 views

Implied Volatility of a call plus its delta

I would like to understand if exists a smart way to imply the volatility from a quote that is the sum of a call and its delta: is there any method other than simple iterative minimization?
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2answers
136 views

How should I convert FX Volatility Surface from one base currency to another?

This might be a very simple question but I wanted to understand how to convert FX volatility surface points which are quoted in one base currency to another currency? Eg I have fx vol quoted in EUR ...
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1answer
57 views

SPX Convexity Spread

In this report on volatility from BNP Paribas, https://globalmarkets.bnpparibas.com/r/Volatility_Express_20171128.pdf?t=BG3REXwMP3NZJRN7wY5Vt&stream=true it states on Page 10 that the SPX ...
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1answer
201 views

Comparing historical to implied volatility

As title states, I am trying to compare historical to implied volatility of a stock. I approximate the single implied volatility (30 days forward) of the stock by first finding 2 series that ...
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0answers
55 views

Vega with SVI Gatheral bumps

How would one go about computing a vega profile of an exotic derivative where the volatility surface is modeled using Gatheral's SVI parameterization? In particular, I am thinking about bumping each ...
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1answer
188 views

CMS spread vanilla options quotation

How are vanilla (call/put) options on CMS spread quoted on the markets ? Through an implied (normal/lognormal) volatility with a normal/lognormal model on the spread in the forward measure ?
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1answer
142 views

Forward Skew in the Local Volatility Model

How does the local volatility model cause a forward skew? How is this different to the skew observed for future tenors in the vol surface?# Also how do LV models underestimate vol of vol?
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1answer
65 views

Implied volatility of inverse quote

Suppose I have a quote of INR/USD and the implied vol surface is also given. Is it theoritically correct to use to same implied vol for analysis of the inverse quote, i.e. USD/INR. Correct me if I am ...
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0answers
62 views

calculating implied volatility of Asian Option

I am new to the site. I saw another similar question but I can't comment on it because of low rep. I wanted to know how the volatility of an Asian is calculated. I was thinking that a weighted ...
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1answer
158 views

Difference in exposure between delta hedged options, ATM straddles and delta hedged straddles

What is the difference in exposures between delta hedged options, ATM straddles and delta hedged straddles. They all seem to provide the same thing, which is exposure to volatility. What are the ...
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2answers
217 views

High-frequency historical IV data

Where can I buy historical IV data for specific individual stocks on specific days calculated at least once-per-min (preferably once-per-second)?
4
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2answers
1k views

Gamma Pnl vs Vega Pnl

Why does Gamma Pnl have exposure to realised volatility, but Vega Pnl only has exposure to implied volatility? I am confused as to why gamma pnl is affected (more) by IV and why vega pnl isnt affected ...
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1answer
268 views

Value of Call Option as Volatility goes to Infinity

Why would the value of a call option go infinity as volatility goes to infinity? I understand how you could solve this question by taking $\sigma \rightarrow \infty$ in the solution to the black ...
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2answers
485 views

Autocallable pricing under stochastic vs. local volatility

I am interest in the reason why an Autocallable (structured product) is cheaper under local volatility compared to stochastic volatility. I thought this was due to the following: when thinking in ...
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0answers
60 views

Anomaly detection in volatility skews / term structure

I'm currently working on some algorithms to help the risks team detect anomalies in the volatilities of equities that are pushed every day in the systems. I quickly thought about using clustering ...
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0answers
46 views

What methods are there for parametrizing a volatility surface?

As the title says, what methods exists for parametrizing a volatility surface. More in detail, if i have a matrix of implied volatilitys based on time and strike price, obtained from the Black-Scholes ...
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0answers
56 views

Local variance derivation by Gatheral

I've bought Gatheral's book on Local Volatility and I have troubles with understanding a part where he shows that local variance is a conditional expectation of instantaneous variance. Why in the ...