Feb 06

Implied volatility - 7 min tutorial

by David Harper, CFA, FRM, CIPM

Using today' quote for an option on Google's stock (strike at $500, expires on 3/21/200), I use the Black-Scholes option pricing model to calculate implied volatility. If we have an option pricing model that solves for the value of the option (c) as a function of f[stock, strike, volatility, rate, term, dividend], then all we need to do is use Excel's Goal Seek tool. Here is the tutorial: