How is historical implied volatility calculated?

January 8th, 2017, 01:43 AM

VIX Calculation Step by Step

Select the options to be included in the VIX calculation.
Calculate each option’s contribution to the total variance of its expiration month.
Calculate the total variance for the first month and the second month.
Calculate 30-day variance by interpolating or extrapolating the two variances, depending on the time to expiration of each.
Take the square root to get volatility as standard deviation.
Multiply the volatility (standard deviation) by 100.
The result is VIX.

January 8th, 2017, 04:46 PM

Can you demonstrate an example of the calculation? Without a math background, it's hard for me to visualize how to implement some of the steps, like #2

Sent using the NexusFi mobile app

September 30th, 2017, 05:47 PM

Well in order to do this I understand one would need historical data of options... The only source I've seen is CBOE but it is very pricy for a given set of years. https://datashop.cboe.com/

Even if you get past the data issue I am not sure on which platform you could backtest this data (for instance Ninja only has price and volume data...). I'd like to backtest it in a multi-instrument strategy which makes it even a bit harder. If anyone has input on this or has tried it before it would be very much appreciated.

Thanks.

September 30th, 2017, 05:58 PM

There are VIXes for all the mega assets, such as Apple. Each strike has its own volatility, too.

While you are at it, you might want to explore the concept of future volatility, such as expressed by VIX futures.

You might want to get a subscription to LiveVol Core. It's not that expensive and offers probably all the functionality you need as for volatility. You can get it for free with certain brokers.

How is historical implied volatility calculated?

Discussion in Options

How is historical implied volatility calculated?