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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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Which volatilities should I use for Quanto Options?

Quanto options pricing formula, as described in this paper is a function of two volatilities: one from the underlying asset and another from the exchange rate. How can I read the "right" volatilies ...
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1answer
479 views

Which models do Bloomberg/Reuters use to derive implied volatility for interest rate derivatives with negative forward rates?

can anybody tell me which models Bloomberg and Reuters ares using to derive implied volatility for interest derivatives with negative forward rates? I know that Black-76 is the standard model, and ...
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2answers
326 views

Confusion with volatility smiles implied by different models

I am reading a book "The concepts and practice of mathematical finance" by Mark Joshi. In Chapter 18 he discusses the shapes and dynamics of smiles under different models. I do not understand what is ...
6
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1answer
143 views

Why is the implied volatility on Bank of Tokyo-Mitsubishi UFJ trending so high?

For the last few weeks, the 12-month ATM call implied volatility of MUFG (TSE 8306) has been trending around 30-35% (according to Bloomberg). This is by far the highest of the major Japanese banks by ...
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0answers
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Implied Equity Volatility under Stochastic Interest Rate

I would like to draw some general conclusions for the effect of stochasticity of interest rate on the implied volatility of a European call of a stock. Below I show, trivially, the implied volatility ...
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1answer
92 views

Implied Probability Density with Puts

The second derivative of the call price at K gives the probability of that strike (implied probability density). In practice, what adjustments or acknowledgements (if any) need to be made to produce ...
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1answer
90 views

Volatility in short-rate models and vol practical issues

I am slightly confused about the volatility term when pricing zero coupon bonds in the Ho-Lee model (and generally about where to get vol from in these kind of short rate models). A particular ...
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0answers
76 views

“At-the-money Implied as a Robust Approximation of the Volatility Swap Rate.” [closed]

Does anyone know where to get this paper? Carr, Peter and R. Lee, January 2004, "At-the-money Implied as a Robust Approximation of the Volatility Swap Rate." On google scholar the paper appears to ...
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2answers
540 views

Volar Higher Order Parametrizations

I came across this presentation from volar.io. The authors show fitting examples for a flexible volatility smile parametrization in 5 to 8 parameters which is also able to fit the locally concave ...
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2answers
321 views

How to calculate the implied daily move of a spread between two futures contracts?

For a single future contract, I can calc the expected daily move (or rent) by using the following formula: ...
2
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1answer
917 views

Swaption Trading

In most Banks, the Traders are provided with ATM Implied vols across different Swaption Expiry's and different Underlying Swap Maturities.(The ATM Implied Vol Cube) If the trader wants to trade an ...
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3answers
519 views

How to approximate the time to mean reversion for implied volatility in python

Its the same question as previous, except I am looking for code in python verses R. How to approximate the time to mean reversion for implied volatility Given an option and its implied volatility, ...
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5answers
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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 ...
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2answers
303 views

What does implied volatility means for different call and put strike prices?

Why there different implied volatility for different strike prices?, Can plz someone explain to me? I am pretty new to options. Thanks in advance
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0answers
59 views

Estimated future volatility for black scholes

I read somewhere in Quantlib that the variance at expiry time $T$ is estimated by $$ \sigma^2 = \sigma_{imp}^2 * T$$ Is this a good market practice? Is it correct to assume that the underlying's ...
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3answers
384 views

At-the-money and volatility smile

In a volatility smile; why is the ATM point usually or ideally at the bottom? In other words, why is the "smile" smile shaped as opposed to another shape?
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1answer
2k views

Where can I find open swaption implied volatility data?

Anyone have a good place to find interest rate swaption implied volatility data? Does Bloomberg's python API allow access?
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0answers
186 views

Quantitative approaches to measuring the effectiveness of a Stock Option Pricing Model?

My question contains many parts, but I will try to keep it somewhat focused. I am primarily looking for a framework to evaluate the accuracy of a stock-focused Options Pricing Model. One of the ...
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0answers
231 views

implied volatility and strike price

Assume for simplicity that the expiration time of an option is $1$ the initial stock price is $1$ and there is no dividend yield and the risk free return is $0$. How is it possible to show that the ...
1
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1answer
765 views

SVI model and Greeks calculation

The option pricing model I am referring to is this one: Arbitrage-free SVI volatility surfaces I calibrated that model by using a set of European options, now I have a set of 5 parameters per ...
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1answer
86 views

Motivation behind stocks become flat after earnings release

Why do some stocks sometimes trade flat after releasing their earnings? Even if good or bad earnings are presented. My suggestion is that the options of the underlying stock have a very high implied ...
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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 ...
8
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2answers
241 views

What is implied volatility?

I always understood implied volatility as a volatility I need to plug into BS in order to get the market price. My question is if I am using different model, does it mean that implied volatility is ...
4
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1answer
140 views

Implied Vol in Different Payoffs

Let's say I have a black box stock price model I run Monte Carlo on to estimate European call prices. For a given strike $K$ and expiration $T$, I then back out the Black-Scholes implied volatility $\...
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1answer
707 views

Log-normal Volatility Approximation

In a comment to this question, it is mentioned that, under the log-normal distribution, \begin{align*} vol(k) \approx vol(atm) \times \sqrt{\frac{atm}{k}}. \end{align*} Here, $k$ is the strike, $atm$ ...
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1answer
60 views

Variability of IVs of OTM options

I'm attempting to fit a curve through moneyness/IV datapoints of intra-day options. As you can see, the data gets sparser and more variable for highly OTM options. I'd like to argue why the outliers ...
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1answer
518 views

How does one calibrate a stochastic volatility model?

I will try to use SABR Model to price call options in FX market. What does it mean to calibrate the model? As far as my understanding of the Wikipedia article goes, it means to estimate the parameters....
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0answers
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The name conventions such as ATM, Risk reversal and Butterflies to construct volatility surface

Why people call (vol call - vol put) risk reversal when risk reversal actually is (call 25 delta -put detlta +25)? when constructing volatility surface? The vol of risk revesal should not be vol call -...
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2answers
219 views

How do they calculate stocks implied volatility?

I know the construction of Black-Scholes model and how do we solve it for an Implied Volatility. But in general, which option ...
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1answer
2k views

How to compute 30/60/90-day Implied Volatility?

I want to calculate the 30/60/90/180 day 100% moneyness implied volatility for a stock. I think I know how to do it but would like to share my thought processes with the group to verify I'm on the ...
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1answer
311 views

CBOE Index Minute Data

I am doing a small research and looking for a place to purchase historical minute CBOE Index data. I am interested in: VIX - CBOE Volatility Index VVIX - CBOE VIX VOLATILITY INDEX VXV - CBOE VIX ...
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1answer
111 views

construct volatility smile based on historic observations

So I calculated historic volatility/skewness/kurtosis for a commodity. I now would like to construct a volatility smile that reflects this historically realized distribution. I tried using some ...
8
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1answer
625 views

Transition Between Volatility Regimes

Emanuel Derman wrote a great paper in 1999 about volatility regimes and the adjustments the market makes during these periods (sticky strike, sticky implied tree, sticky delta, etc). Has any ...
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0answers
110 views

How can we observe volatility smile from the market. Drawbacks of Heston Stochastic Volatility Model

Here are two questions related to implied volatilities. a) The set up here is for an European option. We can get its implied volatility smile from calibration, the question is why could we also ...
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1answer
380 views

Difference between Deterministic Volatility Function approach and Ad Hoc Black Scholes?

I am thoroughly confused after reading Dumas, Fleming & Whaley (1998) "Implied Volatility Functions: Empirical Tests". Both the Ad Hoc BS Model and the Deterministic Volatility Function ...
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2answers
525 views

SABR Model Closed Form Solution

I've been researching the SABR model and one of the main benefits it seems is that you can obtain a closed for solution of the implied BS volatility in certain cases. In all the papers I've read, I ...
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0answers
238 views

Interest rates - Swaptions implied volatility - Volatility anchoring with Black and with normal volatilities

In a LMM+ with displacement factor a volatility anchoring technique is used, i.e. a long term volatility assumptions is applied, derived from historic time series. Should I adjust this historic ...
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1answer
246 views

SVI negative rates

I've used the SVI model in the past for equity option which worekd quite well. I came across a post on Wilmott where someone said hes using SVI for swaption as well. I would like to test the model and ...
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0answers
78 views

Implied volatility

I have a question about calculating the implied vol. Assuming the implied vol that a option will expire in 1 day is $\sigma_1$, and the implied vol that the option will expire in 2 days is $\sigma_2$. ...
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1answer
106 views

Is it possible to find / estimate the volatility surface of non-listed index options?

I have 3 QNET options (european, 2 puts, 1 call, all same expiry, different strikes) that the broker is pricing clearly off a volatility surface. Bloomberg only carries historical volatility and I ...
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2answers
226 views

why Implied Vol (VIX) increase with decrease in Stock Price or vice versa?

why Implied Vol (VIX) increase with decrease in Stock Price or vice versa? whereas Vega is positively related with change in option price to change in stock price.
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3answers
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existence of implied volatility

I read a book where it was written : 1/ "implied volatility is the market's consensus on the volatility of the asset between now and the maturity of the option". -> Could someone explain me this ...
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2answers
337 views

Solving for r in the Black Scholes equation

Could you please correct which parts of my reasoning are wrong? Let's suppose that I know for sure that my estimate for a stock volatility is right (I have a crystal ball) and that it will be for ...
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1answer
600 views

Volatility Smile Approximation

Does anyone know what type of model is used to model the skew and IVs inside Thinkorswim platform for its volatility smile approximation? I am trying to replicate but do not know where to start. Any ...
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1answer
530 views

ATM volatility and flat volatility

Why do the implied volatility curve and the flat curve cross over the ATM volatility (at 100%) ? Tx
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2answers
2k views

SABR Calibration: Normal vs Log-Normal Market Data

This question is about getting some clarification as to how to understand market quotes for normal & log-normal vols together with certain model assumptions. So let us define $C_{BS}(F_0,K,T,\...
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2answers
776 views

Implied Volatility as proxy for instantaneous volatility

In many papers and book I have found a reasoning that it is well summarized in this paper as "The first proxy we use is an unadjusted Black-Scholes proxy in which the implied volatility of a short-...
3
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1answer
217 views

What are some markets that don't have volatility smiles and why don't they?

I have read that volatility smiles didn't show up for equity options until 1987. Can some one give me an example(s) of what markets now still don't have volatility smiles and what an explanation for ...
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3answers
761 views

How to calculate Implied Volatility for out-of-the-money options?

I'm trying to calculate the implied volatility for out-of-the-money options, and to a lesser extent, in-the-money options. Most of the literature estimations I could find for implied volatility were ...
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3answers
171 views

Constant Maturity IV

I want to analyze IV skew under various market conditions but its hard given various expirations. Would it make sense to create a constant maturity IV that say is 60 DTE? Has anyone done this and what ...