What Is Implied Volatility and Is It Typically Sourced from an Oracle?
Implied volatility (IV) is the market's expectation of the underlying asset's price fluctuation over a specific period. It is a key input for options pricing models like Black-Scholes.
IV is not typically sourced from a standard price oracle. Instead, it is calculated algorithmically by the options protocol based on the current market price of the option itself, or derived from a dedicated volatility oracle.
Glossar
Decentralized Options
Architecture ⎊ Decentralized options represent a paradigm shift in options trading, moving away from centralized exchange reliance towards blockchain-based smart contracts for execution and settlement.
Volatility
Measurement ⎊ Volatility, in quantitative finance, is the statistical measurement of the dispersion of returns for a given financial asset, typically quantified by the annualized standard deviation of its price movements.
Price Fluctuation
Volatility ⎊ Price fluctuation within cryptocurrency, options trading, and financial derivatives represents the degree of dispersion of potential returns, quantified by standard deviation or implied volatility derived from option pricing models.
Options Pricing Models
Models ⎊ Options Pricing Models are mathematical frameworks, such as Black-Scholes or binomial trees, adapted to calculate the theoretical fair value of derivative contracts based on underlying asset dynamics and market parameters.
Implied Volatility
Expectation ⎊ This value represents the market's consensus forecast of future asset price fluctuation, derived by reversing option pricing models using current market premiums.
Options Protocol
Architecture ⎊ The underlying design dictates how options are tokenized, collateralized, and ultimately settled using deterministic code execution.