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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Approximating implied price vol from implied yield vol?
I am wondering if there are any approximations that exist to convert yield vol to price vol? I am dealing options on SOFR futures, which can be quoted in yield and price (i.e. 3% put and $97 call are ...
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Fitting volatility using SABR
I have been working on generating a volatility surface for options on SOFR futures with the help of the SABR model. I am running into some trouble for low strikes in particular, in that I cannot seem ...
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Implied volatility greater than realized volatility at all strikes?
It is usually stated that the implied volatility is statistically generally --- not always --- greater than the realized volatility. It seems this statement is made with regard to the implied ...
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Lognormal-mixture dynamics and calibration to market volatility smiles
Can someone assist me in replicating the code and results from page 11, Figure 3 of the paper 'Lognormal-mixture dynamics and calibration to market volatility smiles' by Damiano Brigo, Fabio Mercurio, ...
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If there was a way to back out implied volatility (IV) from a stock, would it be the same as the IV backed out from an option on that same stock?
I know that it is not possible to back out an IV for a stock, because the concept of IV is based on a model with underlying assumptions applied to pricing an option.
I was thinking of why IV is ...
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is implied standard deviation an estimator of risk neutral measure of volatility?
I am wondering if it is, in theory, correct to assume the ISD as the risk-neutral measure of the volatility of the underlying asset and if it is appropriate to price derivatives on the ISD.
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Python - yahoo finance options data - volatility smile plot
I have plotted the IV of TSLA options using yahoo options data, but the scatter plot doesn't look right, can anyone advise why the plot looks like this? I would expect to see a vol smile plotted.
EDIT ...
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How to trade forward volatility?
What would be the best way to trade forward volatility or term structure?
One way, I think of is through gamma neutral calendar spreads. The problem with this approach is "change of ATM" and ...
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What's wrong with calibrating implied volatilities with polynomials?
People use different parameterization schemes to fit the implied volatilities from the market, e.g., SVI. But often times they cannot always fit well, e.g., the "W"-shape before earnings, ...
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In the paper "By Implication" by Jaeckel, he says that put-call parity should never be used in practic
In this paper by Jackel (2006), on page 2, he writes:
The normalised option price $b$ is a positively monotic function in $\sigma \in[0, \infty)$ with the limits
$$
h(\theta x) \cdot \theta \cdot\left(...
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Trading term structure of skew
Is there a way to trade IV skew between two maturities? For example, bull put in near maturity and bear put in far maturity.
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How did Jim Gatheral come up with the SVI parameterization?
I know it has nice properties relating to Roger Lee's moment formula and the Heston model asymptotics, but I am just curious how Jim Gatheral came up with this formula in the first place. I read a ...
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Calibration of Heston using implied vol as $v_0$
I am looking at the difference if you calibrated the heston from market data using objective function minimisation.
In scenario 1, I calibrate all the parameters from market data
In scenario 2, I ...
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Using Cubic Spline with Vol Skew for Equity Options in R
I was recently attempting to replicate a part of the paper - DeMiguel, Plyakha, Uppal and Vilkov (2013), where they compute a model-free implied volatility (MFIV) quantity.
In the paper, the MFIV is ...
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What does it mean with regards to market conditions that the historical volatility is twice the implied volatility
I am trading the Indian market indices. I calculated the last three years historical volatility. Noted down 1 standard deviation of this value.
Then I took a weekly expiry of options on this index and ...
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Volatility Surface Construction: Ask IV, Bid IV and Mid IV
I am presently engaged in a project wherein my objective is to construct a volatility surface utilizing either the SVI parameterization or the SABR model, leveraging real market data. Initially, I ...
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Vanna Volga Price of an Up and In Put
In the Vanna-Volga approach to pricing first generation exotics, such as single barriers, as I understand it the pricing is as follows:
Let $K,S_t < B$. I'll choose the ATM IV $I_{ATM}$ as the ...
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Forward Black Implied Volatility For Within Risk Neutral European Option Pricing
Going to preface this question with an acknowledgement with how silly the ask is, but alas that is the working world; if anyone can share any ideas I'm all ears.
We're pricing an exotic option in risk ...
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Optimal Fitting Criteria of SABR
I was reading about SABR Model and curious about this.
The process of fitting the SABR model involves finding values for the parameters α, β, ρ, ν that minimize the difference between model-implied ...
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Heston Calibration - how far OTM can an option be before it's not considered ATM anymore?
I have been doing reading and supposedly implied volatility of ATM options with 1-2 week expiries are reasonable vols to use as your $V_0$ when calibrating a Heston model.
Firstly, why would it be ...
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Bisection method for implied volatility not working for European Put Options
I am trying to implement a Bisection method for implied volatility calculation. I use an algorithm from Haug (page 455).
...
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Option Pricing for Illiquid case
I am currently studying crypto options trading and have observed that there is often a lack of liquidity for options (such as BTC Options) on various exchanges, including Binance. In many cases, there ...
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Volatility Forecasting
I would like to clear a certain doubt about volatility forecasting: Are models like Parkinson, Rogers Satchell and Yang Zhang used for predicting future volatility?
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Best Method (Or Just a Good Method) of Predicting Intraday Volatility in Real Time?
I apologize if this is a stupid question, I'm a complete neophyte in academic finance but I am trying to learn.
I am trying to create an estimate of how likely indexes are to rise/fall by x% by the ...
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computing implied volatility from greeks
Given a set of greeks (delta, gamma, theta, vanna, volga, vega, rho) and other information such as the dividend rate, dividend forecast, and realized volatility for American or European Options but no ...
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Covariance Matrix of Correlated Random Variable
Suppose I know or have estimated the covariance matrix for one random variable (for example an asset) and have:
$$
\begin{bmatrix}
<\text{spot, spot}> & <\text{atmv, spot}> \\
<\...
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how to derive overnight FX implied vol and how to translate into implied breakeven
is there a good link or explanation how to get a specific day (next month's 1st trading day, etc) overnight implied vol? (pls guide where should i start with?)
and let say USDJPY (say forward ref is ...
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How to apply put-call parity in volatility surface construction?
How to make the volatility surface free of put-call parity arbitrage? If I bootstrapped the implied vol from a call price and plugged it into the BS model to have a put price, what if it violates the ...
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Filtering options data
I am looking to conduct some analytics with regards to options implied volatility. My advisor mentioned about filtering options with time to maturity of less than 7 calendar days. Is there a ...
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Asymptotic behavior of implied volatility at probability mass [closed]
For sake of simplicity, let us suppose that interest rate is zero, stock price is 1, and time to expiry is 1. I am interested in implied volatility that gives the following put price.
$$P(k, \sigma(k))...
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Black-Scholes implied volatility using a GARCH model
Why I'm not getting the same Black-Scholes implied volatility values as the ones given in the paper "Asset pricing with second-order Esscher transforms" (2012) by Monfort and Pegoraro?
The ...
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Strike of a Variance Swap in a Sticky Strike World
Imagine there exists a typical negative skew for some underlying I want to price a variance swap on. Critically, let’s say we are in a sticky strike world (the vols of each strike will not change with ...
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Drift of stochastic variance as slope of the short end of the forward variance curve
I was re-reading Chapter 6 of Stochastic Volatility Modeling by Lorenzo Bergomi. On page 203, he considers a forward variance of the following form:
$$
d\xi_t^T=\lambda_t^T dZ_t^T,
$$
where $Z_t^T$ ...
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Is negative forward variance an arbitrage?
I believe that having a negative forward variance on a ATMF implied volatility curve of a volatility surface could imply the existence of a static arbitrage (for example, a calendar arbitrage). ...
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implied-information in american option
I have recently been researching European options versus American options implied information. For European options, an overview article is Christoffersen(2012). But for American options, I only found ...
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The little Heston Trap in DPS representation
I was wondering if the representation by Duffie, Pan, and Singleton (2000) is already accounting for the little Heston trap. DPS represent their 'general' discounted characteristic function as:
$$
\...
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question on risk reversal P/L example in Euan Sinclair's book 'positional option trading'
I am reading Euan's book, ‘positional option trading’ and have a question about risk reversal P/L example. Here is description 'Consider a 1-month risk reversal on a \$100 stock. The 20-delta put (91 ...
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Implied Volatility Discrepancy in American Options - Mathematical Reasoning?
I've been analyzing Tesla stock American options data and have observed an interesting pattern that I'd appreciate some help understanding.
For this analysis, I obtained the Implied Volatilities (IVs) ...
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Closed form solution to get implied vol from delta with SABR model
Given a set of calibrated SABR parameters, what is the approach to get the implied vol for a given delta ?
thanks
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From model vega matrix to market vega matrix
I'm reading Antonie Savine's fascinating book Modern Computational Finance AAD and Parallel Simulations. However, I got a bit confused while reading and couldn't make sense of how it works in his work....
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interest rate, dividend rate data for black scholes model [duplicate]
I am working on a project to build an implied volatility curve for SPX options. But I am stuck with finding interest rate and dividend rate data for all maturities. Any recommended resources?
Thanks!
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Questions on limitations of local volatility model
I am currently studying local volatility for equity models and I am trying to understand some limitations of the model:
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under local volatility, the forward smile gets flatter and higher.
Lorenzo ...
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Good resources about Volatility Calibration with code Snippet
As I just landed in the quantitative finance world, I would like to dig deeper into Volatility Surfaces construction.
I have a good theoritical background ( I'm familiar with volatility models ) but I'...
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How to structure a trade using vanilla equity options to get vega exposure to forward volatility?
I have been thinking about structuring a trade to get exposure to the forward volatility. For example, let's say SPY ATM 1 month IV is 20 vol and SPY ATM 2 month volatility is 30 vol. Then the forward ...
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Pricing and Risk Management of Exotic Options with a Volatility Surface [duplicate]
Bit of a newbie question; but I see this pop up from time to time.
If we have a volatility surface (e.g. for the S&P500) built from market options what more can we do with it, but price other ...
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In-depth derivation of implied volatility in the SABR model
I'm working through the derivation of Hagan's formula (Hagan et al, 2002) for the implied volatility of an option in the SABR model. I'm finding it pretty confusing. Most of my hang-ups are coming ...
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STOXX50 and VSTOXX joint calibration
I am currently researching the joint calibration problem of SPX and VIX. The idea is that: VIX options are derivatives on the VIX, which itself is derived from SPX options and should thus be able to ...
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Is there anyway to compute the CEV-implied volatility from option prices?
Under Black-Scholes, there exists a solution for the option price for a volatility. The volatility can then be backed out from the option price using numeric methods.
For the constant-elasticity of ...
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Bartlett's delta gives wrong signs for calls and puts
There is a paper by Bruce Bartlett introducing a modified delta for SABR model which accounts for the correlation between forward and volatility processes. The main result of the paper is that if $dF$ ...
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what does correlation $\rho$ means in surface SVI?
Why does everyone say $\rho$ is correlation in Surface SVI?
$w = \frac{\theta_t}{2}(1+\rho\psi(\theta_t)k + \sqrt{(\psi(\theta_t)k+\rho)^2+1-\rho^2})$, with $\rho \in [-1,1]$
This paper says it is ...
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