Volatility Models are displayed for all checked contracts in the center pane of the Model Navigator. The Volatility Model pane includes:
Price Offset - optional. Offset the price of the underlying for selected options, by an absolute value or a percent of the current price.
Volatility Curve Plot - Shows the volatility profile as a function of the strike price. You can manually edit a plot by right-clicking and choosing Edit.
The horizontal axis is the strike price, the vertical axis is the volatility.
Risk Navigator calculates the implied volatility for each option in a class.
The blue and red dots show implied volatility derived from the market data for calls and puts, respectively. Dark blue/dark red indicates a half quote call/put (either just the bid or just the ask).
Volatility knots calculated from the option bid/ask include a representational “error bar” to indicate the error range of the calculation. This range is specified numerically in the mouse-over help, for example “+/- 0.008.” If the volatility is not calculated using bid/ask (for example, a half quote call/put) the error range is not displayed.
If there is no bid/no ask, the volatility is calculated from the previous closing price indicated by an open circle.
The average or close implied volatilities are fitted to a parabola, vs. the strike price. The fit is weighted by the vega of each option, which means that the curve is constrained to be closest to the implied volatilities for the options that have the most vega, i.e. whose option price changes the most per unit change in the option's volatility.
To see details for a given implied volatility point, hold your mouse cursor over the point. The system will display the option right, strike price implied volatility and error range.
