Introduction to Implied Volatility

Course Overview

Do traders truly use the Black-Scholes option pricing model when determining the price of an option? If so, then why do market prices of options differ from those predicted by Black-Scholes? Volatility is the primary parameter the model depends upon, and research shows that traders use more than just historical data when determining future volatilities. In particular, traders reverse calculate the volatilities implied by current options prices. Implied volatility is not constant in real-life and has some unexpected characteristics such as smile-patterns that cause significant consequences on pricing and hedging. This intensive and interactive iRiskWebinar is designed to allow participants to gain a solid understanding of implied volatility (its dynamics and uses in practice), volatility smiles, and modeling implied volatility. Participants will learn how to improve pricing of options by considering the dynamics of implied mvolatility and smile effects. The training includes several Excel-based simulations and exercises.