Define Implied Volatility (IV) and Its Source in Option Pricing ⎊ Path

Define Implied Volatility (IV) and Its Source in Option Pricing.

Implied Volatility (IV) is a forward-looking measure representing the market's expectation of how much the underlying asset's price will fluctuate over a specific period. It is not observed directly but is derived by inputting the current market price of an option into an option pricing model, like Black-Scholes, and solving for the volatility variable.

IV is a crucial factor in determining an option's premium.

What Is “Implied Volatility” and How Is It Derived from the Black-Scholes Model?

What Is “Implied Volatility” and How Is It Derived from the Market Price of an Option?

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What Is ‘Implied Volatility’ and How Is It Derived in the Options Market?

What Is ‘Implied Volatility’ (IV) and How Is It Derived from Options Prices?

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How Does the Black-Scholes Model Use Implied Volatility to Price an Option?