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A non-option financial instrument that has embedded optionality, such as an interest rate cap, can also have an implied volatility. Implied volatility, a forward-looking and subjective measure, differs from historical volatility because the latter is calculated from known past returns of a security.
Market conditions: Major economic events — such as interest rate changes, unemployment data, market crashes or geopolitical tensions — can impact market volatility and, consequently, implied ...
The notion of an implicit graph is common in various search algorithms which are described in terms of graphs. In this context, an implicit graph may be defined as a set of rules to define all neighbors for any specified vertex. [1] This type of implicit graph representation is analogous to an adjacency list, in that it provides easy access to ...
Option traders use an implied volatility plot to quickly determine the shape of the implied volatility surface, and to identify any areas where the slope of the plot (and therefore relative implied volatilities) seems out of line. The graph shows an implied volatility surface for all the put options on a particular underlying stock price.
Each forward rate is modeled by a lognormal process under its forward measure, i.e. a Black model leading to a Black formula for interest rate caps. This formula is the market standard to quote cap prices in terms of implied volatilities, hence the term "market model".
It is worth noting that the normal SABR implied volatility is generally somewhat more accurate than the lognormal implied volatility. The approximation accuracy and the degree of arbitrage can be further improved if the equivalent volatility under the CEV model with the same β {\displaystyle \beta } is used for pricing options.
The average interest rate for a 30-year fixed mortgage stands at nearly 6.7%, well above an average rate four years ago of 2.6%, Freddie Mac data shows. A small rate cut by the Fed would not ...
To determine the cheapest bond in a basket of deliverable bonds against a futures contract, implied repo rate is computed for each bond; the bond with the highest repo rate is the cheapest. It is the cheapest because it has the lowest initial value to yield a higher return provided it is delivered with the stated futures price.