Implied Volatility
Implied volatility is a measure of the expected volatility of a security’s price. It is derived from the price of options on the security, and is used to gauge the market’s expectation of the security’s future volatility. Implied volatility is an important concept for investors to understand, as it can help them make more informed decisions when trading options.
History of Implied Volatility
Implied volatility has been used by traders and investors since the 1970s. It was first developed by Fischer Black and Myron Scholes, two economists who developed the Black-Scholes model for pricing options. The Black-Scholes model uses implied volatility to calculate the theoretical value of an option. Since then, implied volatility has become an important tool for traders and investors to gauge the market’s expectations of a security’s future volatility.
Comparison of Implied Volatility
| Security | Implied Volatility |
|---|---|
| Stock A | 20% |
| Stock B | 30% |
| Stock C | 40% |
Summary
Implied volatility is a measure of the expected volatility of a security’s price. It is derived from the price of options on the security, and is used to gauge the market’s expectation of the security’s future volatility. For more information on implied volatility, investors can visit websites such as Investopedia, The Options Industry Council, and The Options Clearing Corporation.
See Also
- Black-Scholes Model
- Options Pricing
- Volatility
- Historical Volatility
- Realized Volatility
- Implied Probability
- Option Greeks
- Time Value of Options
- Option Chain
- Option Spreads
