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Choosing Historical or Implied Volatility for Option Greeks

Article Quant Q&A · Author: foshizzle
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Summary

The document distinguishes volatility inputs for option Greeks according to the purpose of the calculation. Implied volatility is recommended when estimating the Greeks reflected in current market option prices, which are the market-implied Greeks traders commonly monitor. Historical volatility is suggested for analysis of a past trading session, while implied volatility is suggested when making forward-looking trading decisions.

The guidance is a brief exchange rather than a detailed comparison or empirical study. It does not explain how to estimate either volatility, address model assumptions, or discuss how different options or market conditions could affect the choice. Its practical takeaway is to align the volatility input with the question being asked: describe past conditions with historical data, or represent current market expectations with implied volatility.

Key ideas

  • Implied volatility is used to calculate Greeks that reflect current option market pricing.
  • Historical volatility can be used when analyzing Greeks for a past trading session.
  • Implied volatility is suggested for forward-looking trading decisions.
  • The choice depends on whether the analysis is retrospective or market-implied.

Tags

OptionsVolatilityDerivatives pricing
Full text
# Which volatility to use?


# Which volatility to use?












For calculating the greeks http://www.vollib.org/html/apidoc/vollib.black.greeks.html Should I use historical volatility or implied volatility?

## Answer by nbbo2 (score 5, accepted)

https://quant.stackexchange.com/a/22873

If you want to know what Greeks the market assigns to an option, i.e. the market implied Greeks, then you would use the implied volatility. And that is what traders like to look at.

## Answer by HyperVol (score 0)

https://quant.stackexchange.com/a/23266

If you're using greeks for your past trading session's analysis , you should use historical Vol

If you intend to make trading decisions in future and want to have a future outlook of greeks, you should use implied Vol.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.