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To: rkral who wrote (1127)	1/18/2000 2:08:00 PM
From: RoseCampion	Read Replies (1) \| Respond to of 8096

Could you tell me how to obtain the Standard Deviation (the sigma of the normal distribution) from implied volatility data? I would expect the SD to be expressed in dollars .. so that, for example, the mu (the mean) might be $60 and the sigma $20. Weeeellll....you're quickly going to exhaust my limited knowledge of statistical calculation methods here (yours is clearly vastly larger than mine), but I'll give it a shot. Stock/option volatility data is always expressed as a percentage, and always reflects the variance in the price of the underlying equity over a specified period of time, usually a year. This variance can be the historical (actual) volatility observed in the stock's price (over any desired period - I've seen the last 20, 50, 100, and 200 trading days commonly used), or it can be the expected ("implied") variance - in other words, what the market seems to be assuming ("implying") the variance of the stock will be in the future, based on what the current buy/sell prices of an option or options on that stock. In other words, the historical volatility is what's actually already happened with the price; the implied volatility is what would have to happen in the future to make the current prices of this particular option (or series of options) "make sense" (i.e., be fairly valued). http://www.optionsanalysis.com/ lists iv=64%, for example. Sixty-four percent of what? The stock price? The exercise price? Of Unity? I believe (and will be happy to be corrected) that this means that given the current prices for this option or series of options, the underlying stock would have to exhibit a yearly standard deviation of +/- 64% of its current price to make the theoretical value of this option or options match their current actual market prices. This 64% may of course be higher or lower than the actual historical volatility exhibited by the stock at this point. This has me stumped. How does one obtain the SD from this value? Assuming it's not just as simple as going plus or minus 64% from the current stock price and dividing the time period of interest by 365 (told you I wasn't very sophisticated!), you should check out McMillan - he includes formulas in the back of OSI to calculate all of these items. Sorry if this doesn't answer all of your (good) questions - I will do more research myself if time permits and post again if my understanding and knowledge has actual increased for a change. <g> -Rose-

To: rkral who wrote (1127)	1/18/2000 5:59:00 PM
From: Tom K.	Read Replies (3) \| Respond to of 8096

...Could you tell me how to obtain the Standard Deviation (the sigma of the normal distribution) from implied volatility data?... I'm not a statistics whiz, however, when I wrote a program several years ago to automate Black Scholes, the volatility was defined as the annualized standard deviation. So.... if the volatility is 20% on a $50 stock, the SD would be $10. To get it to less than an annual period like daily, divide by the square root of the time period (252(?) trading days). Gad, I hope my memory is right..... can anyone else confirm? Tom