Why Yahoo Finance Implied Volatility Is Hard to Replicate
Summary
The document investigates why implied volatilities calculated from Yahoo Finance option data do not reproduce the displayed values, using Amazon call examples. It also describes attempts to infer interest rates from the reported volatilities and raises practical questions about expiry time, underlying prices, rates, after-hours data, and one-minute closing prices.
The accepted response says that matching a vendor’s implied volatility requires its precise market inputs, including rates, dividends, underlying price, quote timing, and day-count conventions, as well as its pricing model. Those details are not disclosed, and American-option valuation adds complexity. The response notes that vendor data can be unreliable and that a published implied-volatility calculation method may get close, but it does not identify the exact Yahoo inputs or resolve the sample discrepancies. Its main lesson is that mismatched data and modeling choices prevent exact replication; the sample alone cannot reveal which input or method caused the differences.
Key ideas
- Replicating a vendor’s implied volatility requires matching its market inputs and pricing model.
- Underlying quote selection and timing can affect the implied volatility calculation.
- Day-count conventions and expiry measured in minutes can matter for short-dated options.
- American-option valuation is more involved than the simpler European-option case.
- The response says exact replication is not possible without Yahoo’s undisclosed inputs and method.
Tags
Full text
# Cant replicate implied vols from yahoo finance # Cant replicate implied vols from yahoo finance I am not able to replicate implied vols for Amazon calls using Yahoo Finance data, this is sample data I have | | strike | lastPrice | volume | impliedVol_yh | lastTradeTime | expirationTime | underlyingPrice | yearsToExpiry | impliedR | | 0 | 160 | 41.31 | 13 | 0.500005 | 2024-11-25 15:44:06-05:00 | 2024-11-28 17:30:00-05:00 | 201.14 | 0.00842066 | 0.126245 | | 1 | 165 | 36.26 | 9 | 0.726565 | 2024-11-25 15:29:11-05:00 | 2024-11-28 17:30:00-05:00 | 201.257 | 0.00844904 | -0.00150378 | | 2 | 170 | 31.7 | 15 | 0.666019 | 2024-11-25 14:38:35-05:00 | 2024-11-28 17:30:00-05:00 | 200.835 | 0.00854531 | 0.590767 | | 3 | 180 | 21.5 | 134 | 0.522466 | 2024-11-25 15:39:16-05:00 | 2024-11-28 17:30:00-05:00 | 201.15 | 0.00842986 | 0.212049 | | 4 | 185 | 16.33 | 496 | 0.539555 | 2024-11-25 15:28:30-05:00 | 2024-11-28 17:30:00-05:00 | 201.225 | 0.00845034 | -0.0484541 | | 5 | 190 | 11.37 | 551 | 0.396979 | 2024-11-25 15:40:40-05:00 | 2024-11-28 17:30:00-05:00 | 201.085 | 0.00842719 | 0.06753 | | 6 | 195 | 7.08 | 5403 | 0.28907 | 2024-11-25 15:59:41-05:00 | 2024-11-28 17:30:00-05:00 | 201.24 | 0.00839101 | 0.370351 | | 7 | 200 | 3 | 45189 | 0.240242 | 2024-11-25 15:59:48-05:00 | 2024-11-28 17:30:00-05:00 | 201.24 | 0.00839079 | 0.510516 | | 8 | 210 | 0.21 | 18445 | 0.255379 | 2024-11-25 15:59:59-05:00 | 2024-11-28 17:30:00-05:00 | 201.24 | 0.00839044 | 1.4072 | | 9 | 220 | 0.03 | 3512 | 0.328132 | 2024-11-25 15:58:35-05:00 | 2024-11-28 17:30:00-05:00 | 201.23 | 0.00839311 | 2.72244 | | 10 | 230 | 0.01 | 471 | 0.445318 | 2024-11-25 15:57:59-05:00 | 2024-11-28 17:30:00-05:00 | 201.19 | 0.00839425 | 2.94597 | But I could not replicate implied vols, so instead I tried to replicate risk free rates using implied vols from yahoo expecting rates to be almost the same for options with same expiration time but instead getting rates that do not make sense and some being negative at certain strikes My guess is either underlying prices or time to expiry or risk free rates are wrong - How to correctly calculate time to expiry? I tried (expirationTime - lastTradeTime)/(252 or 365) and a few other things, none of them seem to imply vols anywhere close to yahoo finance's - What risk-free rates to use? Can they be obtained from free source? - Is it ok to use after hours trading data? What underlying price to use after market hours? - Is it possible that yahoo finances option data is nonsense? I see an entry for AMZN241129C00150000 with last trade time(EDT) of 11/25/2024 8:59 PM. It is not 8.59PM (EDT) yet??? - I am using 1minute interval data from yahoo finance, taking their closing prices. Is using closing price the right thing to do? ## Answer by AKdemy (score 6, accepted) https://quant.stackexchange.com/a/81252 Yahoo finance is generally unreliable. See for example Why does Yahoo finance give wrong data? That said, most of the time it should be fine and Yahoo Finance Implied Volatility Calculation should get you close. You need the exact inputs that Yahoo uses for their model (risk free rates, dividends, price of the underlying, time to expiry) before you can even think to replicate a value. Even the price of the underlying isn't straightforward. Do they use mid, bid, ask, the exact time of the option quote? What daycount do they use for rates, IV etc. Once you are certain about the inputs (which you probably cannot as is is not disclosed by Yahoo), you need to decide on the model. Does yahoo finance use approximations like Roll-Geske-Whaley and Barone-Adesi and Whaley, or Bjerksund-Stensland. Accurate solutions like CRR or solving the BS PDE? Therefore, unless you use the exact same method and market data that the pricing engine uses, their is no way to replicate the results. It's relatively easy to replicate Bloomberg OVME to the decimal but only because you see the inputs into the model. You can see daycount adjustment and that 365 days is used (technically expiry is calculated on minutes to expiry, similar to what he VIX calculation is doing (that's why the VIX formula uses 525600 in the denominator). If you would have to source rates, dividends and IV from somewhere there would be close to no way to match BBG exactly. Moreover, doing this for American options is a lot more complex compared to this example as well.
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