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Assessing the intraday relationship between implied and historical volatility
Author(s) -
Kawaller Ira G.,
Koch Paul D.,
Peterson John E.
Publication year - 1994
Publication title -
journal of futures markets
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.88
H-Index - 55
eISSN - 1096-9934
pISSN - 0270-7314
DOI - 10.1002/fut.3990140306
Subject(s) - citation , library science , state (computer science) , history , art history , computer science , algorithm
Historical volatility of the price of an asset or security is typically computed as the standard deviation of daily returns over some recent period (for example, the past 20-60 days). An option's price, however, reflects expected volatility yet to he realized, over the life of the option. If an instrument's return is perceived to he more volatile, the option on that instrument should he worth more, and vice versa. Given a value for this perceived volatility and the other parameters in an option pricing model, the theoretical price of the option can he determined. On the other hand, given the current price of a specific option contract along with the model's other parameters, the model can he solved hackwards for the value of the volatility parameter implied hy the