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Converting FX Volatility Tenors into Black–Scholes Time

Article Quant Q&A · Author: 4pie0
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Summary

The document asks how to represent two-month and three-month maturities from a broker’s implied FX volatility delta-tenor table when using the Black–Scholes formula. It contrasts converting the tenor to a simple year fraction, such as months over twelve, with counting business days under a day-count basis.

The accepted response says the tenors refer to the corresponding calendar months, with the expiry date adjusted for banking holidays and the relevant market convention for moving a non-business-day date forward or backward. It does not specify a universal day-count fraction or explain the full volatility quotation convention. The practical implication is to identify the applicable expiry-date calendar and convention; the brief answer alone does not settle every input needed for a particular FX pricing setup.

Key ideas

  • A broker’s FX volatility table may quote maturities as calendar-month tenors.
  • The expiry date can require adjustment when it falls on a banking holiday.
  • Local conventions determine whether a holiday-adjusted expiry moves forward or backward.
  • The source does not fully specify the day-count or volatility convention required for every Black–Scholes implementation.

Tags

ForexOptionsVolatility
Full text
# volatility Table and BS formula


# volatility Table and BS formula












assume I have implied FX volatility Delta-Term table from broker. I have time noticed as 2M, 3M. what do I have to put into BS formula, is it 2/12 or "count the business days"/"daycount basis"? I am confused with the notion of time.

## Answer by Matt Wolf (score 2, accepted)

https://quant.stackexchange.com/a/7419

Its 2months and 3 months, respectively, adjusted for banking holidays that may fall on the sought after day and the local convention of whether you then move to the next or previous business day.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

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