Business Research Methodology Implied Volatility

Question: Discuss about theBusiness Research Methodologyfor Implied Volatility. Answer: Definitions of Implied Volatility As per Ko Lee, 2015: Implied volatility refers to the implication of the fluctuation in the stock, in the future, which is based on the price fluctuation of the options. Implied volatility proves to be interesting for the retailers as the same has a forward-looking approach, rather than the historical basis approach. As per Christoffersen et al., 2015: Implied volatility refers to the volatility in the price of the securities. It is also one among the other factors which help in the decision making process, while pricing of the options. It gives the buyer a chance to purchase or sell an asset, which would be performed on a pre-determined period in future, at a specific price. Hence, from the above we can know that they have a same view for defining the implied volatility. Finding regarding Implied Volatility As per As per Ko Lee, 2015: The relative value of the option comes under the more useful assessment in comparison to the price of the option. The implied volatility is of utmost importance as the options are quoted in the terms of fluctuations and not in terms of prices. The prices are of various natures and there are many estimation methods. There will be different values of the implied volatility and option prices of the market. As per Christoffersen et al., 2015: The fluctuation in stocks affects the prices of the stocks and options. The effect of the fluctuation mainly creates an impact on the costs of the options. Furthermore, illiquid options expect an earning of higher returns, which supports the existence of a positive premium in option. Hence, both the sources focus upon the impact of the costs and price fluctuation of stocks and options. References Christoffersen, P., Goyenko, R., Jacobs, K., Karoui, M. (2015). Illiquidity premia in the equity options market. Ko, J. Lee, C. (2015). International economic policy uncertainty and stock prices: Wavelet approach. Economics Letters, 134, 118-122.