Implied Volatility Study

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

The price of the underlying instrument

The market price of an option

The strike price of an option

The expiration date of an option

The interest rate, if applicable

Yield/Foreign interest rate, if applicable

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

Topics:

The Implied Volatility Formula

Parameters