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References in periodicals archive ?
The implied volatility in foreign exchange options in emerging markets declined in the second quarter to 9.2 percent, compared with 9.5 percent at the end of the previous quarter.
Bottom line, paying attention to implied volatility is one tool investors can use to carry out what is likely the best investment advice ever dispensed
At a recent 16.1, implied volatility was near the median level of 16.57 over the past 10 years.
Empirical research by Badshah., Frijns., & Tourani-Rad (2013) supported this theory and found a unidirectional spillover from changes in the implied volatility index to the volatility of gold price and exchange rate.
If pricing model is held exactly, then options with different strike prices and expiration dates would be priced in a way to yield the same implied volatility. One cannot ignore the phenomenon of different implied volatilities for different strike prices, called in the literature as "volatility smile" (Natenberg; Abken and Nandi).
The Approximated Implied Volatility Surface under CEV Model
Let's say the expected average return over the next year is 5%, and the current implied volatility is 10%.
Mayhew and Stivers (2003) study the information content of implied volatility about firm level volatility using options on 50 most highly traded stocks listed on CBOE during 1988-1995.
Sehgal and Vijaykumar (2009) found that both call and put options are fairly priced in Indian options market using historical volatility measures subject to trading asymmetry condition and weighted implied volatility underestimates the option prices.
Patell and Wolfson (1979, 1981) investigated the impact of earnings disclosures on the implied volatility of equity options.
If the rational expectations hypothesis is correct and markets are efficient, then implied volatility should contain significant information about future volatility.