Implied Volatility Study

The Implied Volatility study uses the value of options on an underlying instrument to estimate the underlying instruments volatility. To calculate the Implied volatility you need to know the following information:

images/bopt200090000.gif The price of the underlying instrument

images/bopt200090000.gif The market price of an option

images/bopt200090000.gif The strike price of an option

images/bopt200090000.gif The expiration date of an option

images/bopt200090000.gif The interest rate, if applicable

images/bopt200090000.gif Yield/Foreign interest rate, if applicable

Given this information, Aspen Systems enables you to solve for a volatility that leads to an options market price. The resulting volatility is implied because it is based on the notion that the market takes the options price to be correct. In other words, the implied volatility is the markets opinion of what the underlying instruments volatility should be.



The Implied Volatility Formula