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Implied Volatilities

  • Forward looking, predictive
  • Use specific Derivative pricing model
  • Black Scholes pricing model for ATM options
  • The implied volatility calculated from a European call option should be the same as that calculated from a European put option when both have the same strike price and maturity
  • Implied volatility: The value for σ  such that Black & Scholes price is equal to the observed market price.

Truly Predictive in nature and is not a historical simulation but it assumes that Black Scholes
(or any other model) is correct model for calculating market Value of Option


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