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Glossary Term: IMPLIED VOLATILITY

Definition(s) for IMPLIED VOLATILITY:


1. ) pertains to option pricing models that rely upon an assumption of future volatility as well as the spot price, interest rates, the expiry date, the delivery date, the strike, etc. If we are given simultaneously all of the parameters necessary for determining the option price except for volatility and the option price in the marketplace, we can back out mathematically the volatility corresponding to that price and those parameters. This is the implied volatility.

2. ) A measure of the volatility of the underlying stock, it is determined by using option prices currently existing in the market at the time rather than using historical data on the price changes of the underlying stock. See also volatility.

3. ) The volatility percentage that produces the 'best fit' for all underlying option prices on that underlying stock. See also Individual volatility

4. ) refers to the market¡¯s expectation of potential changes in interest rates.



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