What Is the Difference between Implied Volatility and Historical Volatility?
Historical volatility (HV) is a backward-looking measure, calculating the actual price fluctuations of the cryptocurrency over a specific past period. Implied volatility (IV) is a forward-looking measure, representing the market's expectation of the cryptocurrency's volatility over the life of the option contract.
IV is derived from the option's market price and is the key input for option pricing models like Black-Scholes.
Glossar
Option Pricing Models
Framework ⎊ Option Pricing Models are mathematical constructs, such as the Black-Scholes or binomial models adapted for crypto, used to calculate the theoretical fair value of an option based on several key inputs.
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.