Implied Volatility Calculator
FinPricing offers:
Four user interfaces:
- Data API.
- Excel Add-ins.
- Model Analytic API.
- GUI APP.
Implied Volatility
FinPricing provides analytic tool for equity volatiity:
- Deriving implied volatiity from option price
- Calibrating volatiity surface (generating very granular grid)
- Negative Forward Volatility Checker (Removal)
- Check FinPricing valuation models
| 1. Introduction |
An implied volatility is the volatility implied by the market price of an option based on an option pricing model. A volatility surface is derived from quoted volatilities that provides a way to interpolate an implied volatility at any strike and maturity.
The term structures of implied volatilities provide indications of the market’s near- and long-term
uncertainty about future short- and long-term stock prices. A crucial property of the implied
volatility surface is the absence of arbitrage.
When the implied volatilities are plotted against the strike price at a fixed maturity, one often observes a skew
or smile pattern, which has been shown to be directly related to the conditional non-normality of the underlying
return risk-neutral distribution. In particular, a smile reflects fat tails in the return distribution whereas a skew
indicates return distribution asymmetry. Furthermore, how the implied volatility smile varies across
option maturity
and calendar time reveals how the conditional return distribution non-normality varies across different conditioning
horizons and over different time periods.
| 2. Implied Volatility Calculator |
FinPricing provide analytic tools for deriving implied volatiity from market quoted option prices. Given a number of market option quotes at different maturities and different strikes, you are able to construct an implied volatiity surface. Then you can perform volatiity interpolation via a volatiity model, such as, local volatiity model, SVI, SABR, etc.
The inputs are either European call/put option prices and the outputs are implied volatiities.
| References |