Illustrative Example: Volatility – Implied Volatility

File Name: Volatility – Implied Volatility

Location: Modeling Toolkit | Volatility | Implied Volatility

Brief Description: This model computes the implied volatilities using an internal optimization routine, given the values of a call or put option, as well as all their required inputs

Requirements: Modeling Toolkit, Risk Simulator

Modeling Toolkit Functions Used: MTImpliedVolatilityCall, MTImpliedVolatilityPut

This implied volatility computation is based on an internal iterative optimization, which means that it will work under typical conditions (without extreme volatility values, i.e., too small or too large). It is always good modeling technique to recheck the imputed volatility using an options model to make sure the answers coincide with each other before adding more sophistication to the model. That is, given all the inputs in an option analysis as well as the option value, the volatility can be imputed (Figure 2.30).


Figure 2.30 Getting the Implied Volatility from Options



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