Estimating Future Implied Volatility from Historical Volatility

Summary

The document distinguishes estimating past option prices from forecasting future implied volatility. Historical option prices are already observable, so a model using historical volatility and implied volatility would instead address future IV forecasting. The suggested starting point is to calculate historical volatility from the underlying asset’s price series, then calibrate a relationship between that measure and the available implied volatility observations.

After fitting that relationship, the forecasted implied volatility could be used with Black–Scholes to estimate future option values. The answer gives this as a broad workflow rather than a specified model: it does not explain which calibration method, forecast horizon, option inputs, or validation procedure to use. It also offers no empirical results showing that historical volatility predicts implied volatility well. The approach therefore provides a conceptual starting point, not a demonstrated way to extend a limited IV history or reconstruct historical prices.

Key ideas

• Historical option prices are observed market data, so the modeling task described is forecasting future implied volatility.
• Calculate historical volatility from the underlying asset’s price series as an input to the model.
• Calibrate a relationship between historical volatility and the available implied volatility data.
• Use the projected implied volatility with Black–Scholes to estimate future option values.
• The answer leaves model selection, calibration details, and out-of-sample validation unspecified.

Tags

# How to estimate historical implied volatility?


# How to estimate historical implied volatility?












I want to estimate the historical price of out of the money puts on equities.

I do have about 10 years history of implied volatility (IV) but I would like more.

I had the naïve idea modeling the IV with historical vol (HV) and calibrate my model on the 10 year data I have.

Any better suggestions / ideas?

## Answer by Adam (score 1)

https://quant.stackexchange.com/a/33185

You can't estimate historical prices because they are given to you already. If you're trying to estimate future implied volatility based on historical implied volatility and historical volatility, then that is possible.

- Use any statistical package or code to calculate HV based on underlying asset

- Take your IV data and calibrate your HV model somehow (this part is up to you)

- Project new IV into the future via Black-Scholes

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