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Finance Dictionary and Glossary of Investment Terms
A theoretical value designed to represent the volatility of the security underlying an option as determined by the price of the option. The factors that affect implied volatility are the exercise price, the riskless rate of return, maturity date and the price of the option. Implied volatility appears in several option pricing models, including the Black-Scholes Option Pricing Model.
e expected volatility in a stock's return derived from its option price, maturity date, exercise price, and riskless rate of return, using an option pricing model such as Black-Scholes.