Stack Exchange Network

Stack Exchange network consists of 174 Q&A communities including Stack Overflow, the largest, most trusted online community for developers to learn, share their knowledge, and build their careers.

Visit Stack Exchange

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.

0
votes
0answers
13 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 ...
0
votes
1answer
65 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....
3
votes
0answers
35 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 ...
-1
votes
1answer
38 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?
2
votes
2answers
108 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, ...
8
votes
3answers
286 views

clarification to use collocation methods to get arbitrage free sabr

I'm reading the following two papers (first, second) which suggest a so called "stochastic collocation method" to obtain an arbitrage free volatility surface very close to an initial smile stemming ...
3
votes
1answer
774 views

FX Option strikes from ATM, RR, BF quotes

I am trying to replicate the results in Consistent Pricing of FX Options, A. Castagna and F. Mercurio. However, when I calculate the strike prices for 25-delta put and call and ATM I cannot get the ...
4
votes
1answer
94 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 ...
5
votes
4answers
721 views

Black-Scholes: Why the focus on volatility?

We know Black-Scholes is an imperfect model for options pricing. Why is so much of the analysis of its defects focused on implied volatility? The fact that IV varies for the same stock at the same ...
7
votes
1answer
109 views

Linear interpolation of local vol no arbitrage

We already know the equivalence between local vol, implied vol and option price and there ...
0
votes
1answer
53 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
-1
votes
0answers
20 views

STEPS to calculate implied volatility? [duplicate]

please what are the STEPS to calculate implied volatility for the German stock market?
0
votes
1answer
151 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-\...
0
votes
0answers
24 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 ...
2
votes
1answer
336 views

Comparing Implied Vol. to Historical Vol. using intraday data

I'm interested in estimating what my profit/loss would be for continuously gamma scalping a delta hedged option over the course of one day, using historical intra-day price data. I found an equation ...
0
votes
1answer
35 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 ...
1
vote
0answers
51 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 <...
9
votes
1answer
415 views

“Extract” the density of the underlying, given the implied volatility “surface”

Suppose given implied volatility quotations $\widehat{\sigma}(T_i,K_j)$ of call options on an underlying $S$ for various expiries $T_i$'s and strikes $K_j$'s. I am interested in the following problem :...
3
votes
1answer
83 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 ...
5
votes
3answers
808 views

Forward implied volatility

Can one price accurately by only using vanilla options a derivative that is exposed/sensitive mainly to the forward volatility ? If it is impossible in the real world, what do we mean by saying "...
13
votes
5answers
7k views

What is a regime switch?

I've come across the term regime switch in volatilities when reading about the modelling of interest rates but could not find a definition for a regime switch and what a regime is. Can somebody give ...
1
vote
1answer
67 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 ...
7
votes
3answers
548 views

Parameters for pricing option on EDF

Ladies and Gents, Im writing a quick routine to calculate implied vols for options on EUR$ futures with Bloomberg data. My question concerns the part where I have all my inputs and am ready to pass ...
1
vote
1answer
112 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 + ...
2
votes
0answers
46 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(\...
0
votes
1answer
78 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 ...
1
vote
1answer
64 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. ...
4
votes
1answer
128 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, ...
0
votes
1answer
94 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 ...
5
votes
0answers
98 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 ...
4
votes
1answer
149 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 ...
1
vote
0answers
39 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 ...
0
votes
1answer
82 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
votes
0answers
64 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? ...
5
votes
1answer
241 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 ...
6
votes
5answers
2k views

Is there a good closed-form approximation for Black-Scholes implied volatility?

While the solution for IV can certainly be reached using numerical search methods, I wonder if a high precision closed-form approximation exists. For example, there is a very robust (precise within ...
0
votes
1answer
57 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
votes
1answer
135 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 \,...
1
vote
2answers
2k views

Price volatility and yield volatility

This question is a bit confused, but please bear with me. Now and then I see people use the terminology "price volatility" and "yield volatility" in connection with bond options. I understand the ...
0
votes
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 ...
1
vote
1answer
94 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 ...
0
votes
0answers
25 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 ...
1
vote
2answers
141 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,...
1
vote
1answer
495 views

Interpreting and scaling of Realized Variance with sample data

I have some question about realized variance(RV) and I have some sample prices below to work with. You can run the R code below to build a vector of log returns. Three are 78 5-minute buckets in a ...
0
votes
2answers
701 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 ...
0
votes
1answer
161 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)
1
vote
2answers
231 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 ...
0
votes
0answers
51 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 ...
9
votes
2answers
2k views

Arbitrage Free Volatility Smile

When ATM implied volatility is higher than OTM put and call I believe that the volatility smile is no longer arbitrage free? Why is that? On the other hand, when ATM implied volatility is lower than ...
6
votes
1answer
198 views

Different versions of sticky strike, moneyness and delta

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