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.

Filter by
Sorted by
Tagged with
4
votes
1answer
127 views

Is there a simple, intuitive derivation (using Taylor series) of the following approximation to Vega-weighted Implied Volatility?

The approximation is: $$\sigma \approx \frac{\sum V_j\sigma_j}{\sum V_j}$$ Background information from the first answer to this post: "Say that you have a portfolio of options with prices $P_j$. ...
4
votes
2answers
195 views

Estimating at-the-money volatility where at-the-money option is absent from the market

I am trying to estimate the intraday ATM volatility in a market where the the strike prices are relatively sparse thus the ATM option may not exist (let's say the closest strike is about 2% away from ...
4
votes
2answers
305 views

Tradable information from BS Implied volatility

These are two follow up questions to: Implied volatility as price transform I understand that the BS model is used as a 'Blackbox' that takes a market price and maps it in a 1to1 fashion to a 'BS ...
4
votes
1answer
2k views

What equation will convert implied yield volatility to implied price volatility?

I am trying to figure out how to turn implied yield volatility of a short-term interest rate into implied price volatility. Is there an equation to do this? I have come across the equation for a ...
4
votes
1answer
824 views

Why does Skew measure remain more-or-less constant for Listed Expiries?

I have looked at the Variance Swap Papers published by GS-VarSwap and JPM-VarSWap where they talk about approximation to VarSwap strike using ATMF vol and Skew (slope of the volatility skew for 90-110 ...
4
votes
0answers
86 views

Anyone know if this daily report discontinue to publish? Goldman Sachs - “Global Index Volatility and Correlation Monitor”

I used to receive this daily report in my workplace from Goldman Sachs mailing list but the mailing list discontinued in May 2019 without any notice. The report is an pdf attachment which send from "...
4
votes
0answers
170 views

The error term of Hagan's approximation of Black's vol in SABR

Hagans approximation of Black's implied vol in SABR is very! difficult to understand fully. But I want to ask in here if anyone can tell me more about the error term. Consider the paper: http://web....
4
votes
0answers
52 views

Measuring implied move priced into an event

It's well known that options price in an expected move in the underlying going into events, such as earnings announcements. I currently measure this implied move by computing the forward variance ...
4
votes
0answers
243 views

Volatility of a stock basket

to determine the volatility of a basket of stocks, I often use the following formula: $\sigma_{basket}=\sum_{i}\sum_{j}w_i w_j \sigma_i \sigma_j \rho_{ij}$ where the $\sigma$ are the constituents' ...
4
votes
0answers
82 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 ...
4
votes
0answers
2k views

Implied volatility from American options using python

I am currently trying to construct volatility surface from american option prices (using Cox-Ross-Rubinstein tree) in Python 2.7. Below you can find the code I came up with. Any corrections would be ...
4
votes
0answers
231 views

What is the longest number of consecutive days that options implied volatility has stayed “extremely high” for any particular underlying?

Curious as to whether or not there is any sort of all time record. Any index, future, or stock will do. Volatility must be well above the average 1 year volatility for all periods.
3
votes
2answers
325 views

Flaw in the following argument with Binary Options and Skew

A Binary option is ATM and expires tomorrow. If the skew of the vanilla options steepens (left side up, right side down) what happens to the price of the Binary Option. I know that using a ...
3
votes
1answer
2k views

Implied Volatility Surface - log forward moneyness

I'm reading this paper by Fengler (2005) and have came across the below snippet. context: Implied volatiltiy surface plot has 3 dimensions IV, Strike, Time to Maturity. Author replaced Strike with ...
3
votes
2answers
156 views

Relation between Implied and Historical Volatility of GBPUSD and USDGBP

Q1. How is the implied volatility of GBPUSD and USDGBP related to each other mathematically? Please explain this intuitively as well. Q2. How is the historical volatility of GBPUSD and USDGBP ...
3
votes
1answer
1k 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 ...
3
votes
1answer
114 views

Question about volatility surfaces

As a learner, I'm curious to know the answer to 2 questions regarding volatility surfaces 1) It's stated that volatility surface should be flat accdording to Black-Scholes model. Why is that? Time (...
3
votes
1answer
197 views

What is upper left vol?

First time question, so please let me know if you have feedback for how I am asking. I am reading a market research piece and it makes reference to the performance of "vol, particularly the upper ...
3
votes
1answer
492 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
votes
2answers
1k views

Delta Hedging with fixed Implied Volatility to get rid of vega?

I'm wondering if i should use a floating IV or a fixed IV to delta hedge my options every day. I've read this post but would like different information : Delta Hedging with fixed Implied Volatility ...
3
votes
2answers
5k views

Why a calendar spread is a preferred strategy in a low volatility period

What is it about a calendar spreads opposed to other spreads (e.g vertical spread) that makes it such a popular strategy for a period of low implied volatility? Is it that when low volatility turns ...
3
votes
1answer
489 views

Implied volatility and pricing of vanilla options

As far as I understood, implied volatility (IV) is a lucky parametrization of the vanilla option's price. That is, instead of deciding how much the call worth now, you can decide on its IV and put ...
3
votes
1answer
2k views

European Swaptions: does implied volatility of swap rates decreases both with start and tenor?

Does implied volatility of swap rates decreases both with start and tenor? Given a Swaption price and a discount curve I calculate the swap_rate from the curve, then I define implied volatility as ...
3
votes
1answer
113 views

Different volatility surface ( Local vol, Stochastic vol etc.)

Despite many questions about local and stochastic volatility available on this forum, i still have a few doubts left. Essentially I am seeking validation whether I am interpreting things correctly. ...
3
votes
4answers
168 views

What is the intuition behind “jumps” causing volatility skew?

Some models use jumps as a way to explain volatility skew. I understand that if jumps exist, then you are "mishedged" as you no longer can continuously hedge. Options have a gamma component and ...
3
votes
1answer
160 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 $\...
3
votes
3answers
210 views

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 ...
3
votes
3answers
435 views

Implied volatility of a complex options position

Assume I have a "complex" options position like a straddle, strangle, or iron condor. In other words, several options traded together as a single position against one underlying asset (not a basket ...
3
votes
1answer
4k views

Why is IV different between put and call of same strike

In his book 'Dynamic Hedging' Nassim Taleb says that the volatility of an OTM put should be exactly equal to that of a corresponding in the money call of same strike. But in option chains, the ...
3
votes
1answer
2k views

How does Volatility Pairs Trading work?

I've read some material related to pairs trading for equities and I understand the process of finding non-stationary pairs price series that can be cointegrated to form a stationary series. The basic ...
3
votes
1answer
821 views

Does Implied Volatility always exist?

I am considering a simple Heston Model Market with one risky and one riskless asset. The dynamics of the riskless asset is simply $dB_t=r*B_t*dt$ The dynamics of the risky asset is as follows, $ ...
3
votes
1answer
103 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 ...
3
votes
2answers
444 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
3
votes
3answers
254 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 ...
3
votes
1answer
705 views

Determining the implied volatility for options with bid/ask prices below the intrinsic value

I need some help in understanding the Black-Scholes option pricing model. In my data there are several deep itm European index put options that have an ask price below the intrinsic value. ...
3
votes
1answer
9k views

Realized Volatility vs. Standard deviation of log returns

I am interested in calculating high frequency 5-minute intraday volatility. I am going to use the standard Realized volatility which is the square root of the sum of squared log returns. Given X is ...
3
votes
1answer
568 views

Why future (forward) volatility smile is important to path dependent option?

I was wondering why future volatility smile is important to path dependent option and American type option such as Bermudan swaption. It would be best if someone could provide a reference article as ...
3
votes
1answer
154 views

If an option went down in value, how much is due to theta decay and how much due to fall in IV

Let us say that there was a stock trading at 100 and the 105 call was trading at 3 $. with 1 month to go Now stock went up to 104 after 15 days, and the call dropped to 2.80 $, to the call buyer's ...
3
votes
1answer
299 views

Implied volatility in Monte Carlo models

Suppose I want to get the implied volatility for a given option, whose process does not generate a closed-form formula. In that framework, how is the IV calculated, given the fact that bisection ...
3
votes
1answer
130 views

Short time to maturity behaviour of implied volatility

There are several perturbative expansions in derivatives literature on the short-time to maturity behaviour of implied volatility. When it comes to implied volatility in (local) stochastic volatility ...
3
votes
1answer
187 views

Why is there an upper limit on the premium of an ATM (!) call swaption in the Black76 model?

Trying to imply Black76 (where the forward swap rate is log-normal) volatilities as Bloomberg does in their VCUB screen we see holes at two regions: at short maturities due to negative rates which ...
3
votes
1answer
205 views

How to get Correlation using Options data?

I can calculate the "Implied Beta" using implied volatility for the option stock, and implied volatility for the market (VIX). Is there any way to calculate also the correlation without performing a ...
3
votes
1answer
584 views

Hedging - calculating option prices using implied volatility surface

To hedge a strategy is it accurate "enough" to price an option using an implied vol curve vs moneyness (strike/spot) assuming sticky delta? The moneyness can be read off the chart, its corresponding ...
3
votes
1answer
195 views

Different Exercise Style Options on Same Underlying

Some equities on European markets have options traded in two different exercise styles: American and European. Examples: ABB and ABB (european) on Eurex Banco Santander on MEFF Consider ...
3
votes
2answers
349 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 $S$, $\sigma$ ...
3
votes
2answers
392 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, ...
3
votes
1answer
156 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 \,...
3
votes
1answer
970 views

Obtaining swaption prices from lognormal volatility quotes

I am working with the following dataset from quandl: https://www.quandl.com/databases/CSWO (I'm using the sample dataset only). My question is how to obtain the swaption prices from the quotes given. ...
3
votes
1answer
1k 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 ...
3
votes
3answers
442 views

Seeking a model to Isolate a stock option's Implied Volatility related to a specific event

Note - These are my interpretations of options pricing and assumptions going into this question. Please feel free to comment on them or correct me if I am off. Option Implied Volatility varies based ...