In order to compute the implied volatility,one must force the option to be correctly priced by the model.

Question

Quizplus · Accepted Answer

Implied volatility is the volatility value that makes the option price equal to the market price. In order to calculate implied volatility, we need to input the market price of the option and use a theoretical pricing model such as Black-Scholes to solve for the unknown volatility value that makes the calculated price equal to the market price. Therefore, we need to force the option to be correctly priced by the model in order to calculate the implied volatility.

In Order to Compute the Implied Volatility,one Must Force the Option