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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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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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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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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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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147 views

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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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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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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84 views

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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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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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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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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114 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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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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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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171 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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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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