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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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73 views

Fitting Gatheral's SVI model

I was considering using Gatheral's formula for fitting option skew. In the specific (commodity) market that I am concerned with, the underlying is ca. at 50, and typically 5 integer strikes left and ...
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3answers
133 views

What does Volatility Smile tell? [on hold]

Could you please share your opinions about Volatility Smile? What does it tell us when it gets more convex or when its level changes over time or any other change on it. Any paper/work/blog ...
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1answer
75 views

python scipy optimize minimize arguments for Implied Volatility

I am having some trouble getting the 'correct' solution to a function where I am trying to utilize scipy.optimize.minimize. In the code below, I create a function <...
2
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0answers
62 views

Using SVI model for IV surface

I am using well-known paper of J. Gatheral & A. Jacquier Arbitrage-free SVI volatility surface to explore SVI model. on the page 6 in the bottom is statet that The SVI-Jump-Wings (SVI-JW) ...
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1answer
135 views

What is market standard model in equity, FX and interest rates exotics?

Is there any industry consensus about the model to use for pricing exotics in equity, FX and interest rates? I assume that for vanilla options they all use Black model, but how about exotics? Also, ...
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1answer
67 views

Volatility surface tenors

I don't think this has been asked before, but are the tenors on a volatility surface out of spot date for the currency pair or out of value T+0?
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0answers
25 views

The Free Boundary SABR: Natural Extension to Negative Rates

In the paper by Antonov, Konikov and Spector An alternative approximation for the SABR model is presented. I'm interested to implement the formula for the ATM swaptions implied volatilities in the ...
4
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2answers
204 views

Sticky Strike or Sticky Delta

Given market tick data for a single tenor for a futures and a set of options on the futures, how can I say if the IVs in the market at this point is sticky strike or sticky delta? I was trying to ...
10
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1answer
351 views

Variance swap volatility - ATMF vol, Skew and Curvature

In a pure diffusion setting, it is a well known result that the volatility $\sigma_T$ of a fresh-start variance swap of maturity $T$ as seen of $t=0$ verifies \begin{align} \sigma_T^2 &= \Bbb{E}_0^...
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0answers
73 views

Alternative Method for Determining Option-Implied pdf

As I am refining a pricing model to incorporate skew, and not just ATM volatilities, I need to create random realizations of the underlying consistent with the skew-implied pdf. When searching, one ...
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0answers
46 views

Term structure of the ATM implied volatility of short term weekly options

It's an empirical fact that the implied volatility of short term weekly options are significantly higher than options that expire in a few weeks, and the volatility of the near term options get even ...
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1answer
194 views

Vanilla Option Prices from Local Vol Surface (using neither MC nor PDE)

There are numerous papers that describe the derivation of the Local-Vol equation using available market prices of options. For example: Dupire's formula (see e.g. OpenGamma (2013)) gives us LV in ...
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1answer
163 views

What is forward moneyness and how to calculate it?

I'm now studying the concept "implied volatility", and my teacher gave us a figure about the implied volatility with respect to the moneyness which is expressed by ...
3
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2answers
205 views

What is the Brownian motion in the model for the return of a stock price trying to capture?

I have read that in the derivation of the Black-Scholes PDE, we assume that the return of a stock $S$ is given by $$\frac{dS}{S}=\mu dt+\sigma dB$$ where $\mu$ is the average growth of $S$, $\sigma$ ...
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0answers
37 views

What volatility to use to estimate BDT?

I am attempting to estimate the value of a bond with prepayment option (callable bond). In order to do so, I am fitting a lattice to the Libor Swap curve using a BDT model. The measurement date is ...
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0answers
53 views

Volatility surface fitting, interpolation and extension from sparse data

There are some nice papers about constrained spline fitting essentially giving you a smoothing and arb free surface. I am focusing on the oil market here: The market is essentially split in a very ...
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1answer
40 views

Smoothing of Implied Volatilty

I'm using ATM 30D implied volatility in a model I'm building, but need to smooth out the data. Is the best way just to use exponential smoothing or are there any better alternatives?
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2answers
180 views

How is volatility different from variance?

I always thought volatility was just variance ^ (1/2). Now I'm reading this book and it's saying that the two are different concepts. Excerpts include: Partly due to its use in Black-Scholes, ...
4
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1answer
116 views

Splitting theta from vol carry

What is the best way to splitting theta and vol carry on say a long calendar trade? Basically trying to split the "good" carry component of a trade from the "bad" carry (theta) which could be earned ...
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1answer
60 views

implied volatility indice and implied volatility [closed]

Can anybody explain to me Why should we calculate implied volatility if there is already an implied volatility index where implied volatility is already calculated??? I can't understand the difference
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0answers
29 views

Data request: Option prices for a liquid index/stock

Currently doing a course project on option pricing as a part of my undergraduate studies. However I cannot find a free dataset $D=[d_1,d_2,...,d_N]$, which would represent a time-serie of daily option ...
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1answer
45 views

Filter options used in the construction of implied volatility surface

Currently trying to model the IV Surface using the APPL options, to compare how different models of the underlying move the IV Surface. However, after getting the data, I've seen that some option ...
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0answers
70 views

How to price equity options using a Black76 implied volatility surface?

I would like to calculate the fair value of american and european options on various equities and indices using QuantLib C++. Since I do have discrete dividends available for most underlyings, I use <...
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1answer
75 views

VXX Put pricing

Last week at Friday's close, the Dec 14 37.5 Put options were selling for \$.68 with VXX at \$40.29. This week at Friday's close, the Dec 21 37.5 Put options were selling for \$.38 with VXX at \$40.50....
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1answer
95 views

Basic questions on options, implied volatility and SPY

I am a bit confused about the impact of implied volatility on options, SPY options especially. I know that option's price decays with time and that is positively correlated with implied volatility but ...
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1answer
80 views

Black Scholes on Eurodollar Options

I am trying to replicate the Black Scholes results of CME option calculator for options on Eurodollar Options. (link) I am trying to replicate the implied volatility result by unaltering the spot and ...
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1answer
117 views

Why are implied volatility and the volatility required for an option to be profitable two different things?

SPY currently trades at $278, a put option expiring in 7 days against SPY, at this strike price, quotes \$2.40. This means one person (the option buyer) is betting SPY will quote below $280.40 (278 + ...
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0answers
50 views

Black-Scholes IV from Characteristic Function

I'm trying to follow Gatheral 2006 on his derivation of the BSIV from a characteristic function. The most relevant formula is (5.7) page 60. $$\int_0^\infty\frac{du}{u^2+(1/4)}\Re[e^{-iuk}\left(\...
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1answer
71 views

For equity options, does the implied vol change if the price of the underlying does?

For example, consider S&P options. My reasoning is rooted in the fact that VIX returns and S&P returns have a negative relationship, since VIX is a measure of S&P options' implied vol. ...
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1answer
223 views

Modern market conventions for interpreting interest rate swaptions quotations in a negative interest rate environment

I have broker data and I see three sets of swaption vol data: Lognormal (Black) Shifted Lognormal (Black with displaced diffusion) Normal (Bachelier) The quotes are given by the following key (Date, ...
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1answer
222 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 ...
0
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1answer
103 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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0answers
46 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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1answer
128 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
89 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 ...
3
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0answers
74 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? ...
6
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0answers
123 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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1answer
117 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
83 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 ...
3
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1answer
143 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
17 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
144 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
29 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
174 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
192 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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1answer
230 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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2answers
324 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 ...
6
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1answer
278 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
104 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 ...
6
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2answers
255 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 ...