As we know implied volatility is derived by interpolation of market price and the guess of the volatility by using the option pricing formula.
what are the real life applicaiton of implied volatiltiy
thanks in advance
Modelling the price of options.
In a sense, part of trading options is actually trading volatility of the underlying asset.
This is also the only reliable method to estimate forward-looking volatility for corporations.
For the same asset implied vol depends on maturity and strike. Very few options are market quoted (except for major stock indices). For these quotes you can build (extrapolate and interpolate) the whole volatility surface and price the remaining options. Along that story is that you might find mispriced options. Second is that you may find more complicated (exotic) options using vanilla option implied volatility
The iv- is used to estimate or summarise the influence of the market position as how worse or better the stock, the market, the option or position for the traders. The iv- is the special systematics (sys) risk. The v-sys is the non-sys as the stocķ company risk by its influence, the iv-sys is the sys risk in the market by instrument, and the spec iv-sys is by the position. The three can be argued to make a distinctive triangular analysis in the convexity uphold over the specifics of the market. The two v/iv-sys opt by Vega(v,iv) and leverage/elevate by the threshold 🙊 to v/iv-uncertainty benefit. The v-ub is constant as non-sys and no inside trading in the market. Thus a Triangular Uncertainty per Market position. The TUM is upholding/downholding 🙈= (-🙊). As such clearance info spec is virtue. However, in an instance a Rectangular-Square tosso, per say could bit figure things out. Considering the RS method using the grammer density in the v-surface and the market making traders positions viewing the packaging risks profiles implications as the v/iv-sys pairs of non-sys & -sys, as special in the com or mkt, or com & mkt, and also spec in the mkt as grid existing pairs of the risks profiles. All 3-issue combined or 2-pemuted sys in the 3-profiles risks. Thus the 18 iv-sys grid profiles. The 3×3×2 cubic block. The 18 blocks are real life events for uses in minding the systematics.
An option trader needs the implied volatility, at least of liquid options, not to price, the price is given by the market, but to hedge the options, by means of the underlying assets and a proxy of a bankaccount. I advise you, to pay a visit to option traders, in order to get a picture of what is going on in the trading pit!
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