Method, system, and computer program product for summarizing an implied volatility surface

• US 20040039673A1
• Filed: 09/27/2002
• Published: 02/26/2004
• Est. Priority Date: 08/19/2002
• Status: Abandoned Application

• Current Assignee: Option Research and Technology Services LLC
• Original Assignee: Option Research and Technology Services LLC
• Inventors: Wood, Myron, Amberson, Matt
• Application Number:
  US10/259,102
• Publication Number:
  US 20040039673A1
• Time in Patent Office: Days
• US Class Current: 705/36
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis

Abstract

Disclosed is a method, system, and computer program product for summarizing an implied volatility surface. The method includes steps to retrieve options-related data for a selected option chain, calculate the implied volatilities and other relevant values that represent a theoretical implied volatility surface and displaying a table containing values thereof, contemporaneously displaying a table representing the market implied volatility surface, and comparing the two tables to determine an advantageous market transaction.

Claims

1. A computerized method for assisting option value forecasting comprising the steps of:

(a) retrieving option-related data for a selected option chain;

(b) calculating a plurality of parameters that summarize a theoretical implied volatility surface;

(c) displaying a first table representing the theoretical implied volatility surface and contemporaneously showing a second table representing a market implied volatility surface; and

(d) comparing the first table and the second table to determine an advantageous options transaction.

2. The method of claim 1, wherein the plurality of parameters includes:

a plurality of at-the-money volatilities;

a plurality of intra-month slopes;

a plurality of intra-month derivatives; and

a plurality of out-of-the-money call and put effects.

3. The method of claim 2, wherein the plurality of at-the-money volatilities are summarized by an intermonth curve defined by a 20 trading at-the-money volatility, an infinite at-the-money volatility and a steep factor.

4. The method of claim 2, wherein the plurality of parameters further includes:

an implied interest rate and an implied dividend.

5. The method of claim 1, wherein the plurality of parameters includes a seasonal effect.

6. The method claim 1, wherein the plurality of parameters includes an earnings effect.

7. The method of claim 2, wherein a series of calls and puts used to calculate an at-the-money volatility is limited to those calls and puts with delta values greater than or equal to a lower limit and less than or equal to an upper limit wherein call or put values outside the lower and upper limits exhibit unreliable implied volatility measurement behavior.

8. The method of claim 7, wherein the lower limit is 0.15 and the upper limit is 0.85.

9. The method of claim 1, wherein the options-related data includes:

(a) for an underlying security;

a last sale price, expected dividend dates, expected dividends, expected earnings announcement date;

(b) for each call and put option in the selected option chain;

a bid price, an offer price, a strike price, an expiration date and a number of shares per contract; and

(c) for all underlying securities, calls, and puts;

a short-term risk-free interest rate and a long term risk-free interest rate.

10. A method of displaying a volatility surface graphically comprising the steps of:

(a) defining a first axis to represent a delta of each of a plurality of options in a selected option chain;

(b) defining a second axis to represent an implied volatility of each of a plurality of options in the selected option chain; and

(c) displaying a first graph in which data points coinciding with values on the first axis and second axis are plotted.

11. The method of claim 10, further comprising the step of displaying a second graph having a third axis divided into a plurality of intervals defining a plurality of sub-axes, each individual interval of the plurality of intervals representing an expiration month, each sub-axis in the plurality of sub-axes representing the delta of a plurality of options in the selected option chain for the expiration month associated with the interval, and the second graph having a fourth axis representing the implied volatility of the plurality of options in the selected option chain.

12. A method of calculating an at-the-money volatility using a series of calls and puts, the series being limited to calls and puts being limited to those with market values greater than or equal to a calculated rip value, wherein the calculated rip value is selected to filter out options whose cost exceeds a total potential hedging benefit.

13. The method of claim 12, wherein the calculated rip value is a theoretical value of an option with 45 days to expiration, having a delta of 0.25, and having a volatility equal to an implied volatility of a similar option traded in the market or the historical volatility of the underlying asset.

14. A method for adjusting a security'"'"'s theoretical implied volatility surface using a seasonal effect comprising the steps of:

(a) selecting a percentage to adjust the security'"'"'s volatility;

(b) selecting a starting date at which to apply the percentage;

(c) selecting a number of days over which to apply the percentage; and

(d) adjusting the security'"'"'s implied volatility surface starting at the starting date, for the number of days, at the percentage.

15. A method of adjusting a security'"'"'s volatility using an earnings effect comprising the steps of:

(a) selecting a percentage to adjust the security'"'"'s volatility;

(b) determining an earnings announcement date and selecting a starting date;

(c) selecting a number of days over which to apply the percentage; and

(d) adjusting the security'"'"'s volatility starting at the starting date, for the number of days, at the percentage.

16. A system for assisting option value forecasting comprising:

a storage device, a means for receiving data;

memory;

a program module;

an output device; and

a processor responsive to a plurality of instructions from the program module, being operative to;

(a) retrieve option-related data for a selected option chain from memory;

(b) calculate a plurality of parameters that summarize a theoretical implied volatility surface and storing the plurality of parameters on the storage device; and

(c) display a first table representing the theoretical implied volatility surface and contemporaneously display a second table representing a market implied volatility surface on the output device.

17. The system of claim 16, wherein the plurality of parameters includes:

a plurality of at-the-money volatilities;

a plurality of intra-month slopes;

a plurality of intra-month derivatives; and

a plurality of out-of-the-money call and put effects.

18. The system of claim 17, wherein the plurality of parameters includes a seasonal effect.

19. The system of claim 17, wherein the plurality of parameters includes an earnings effect.

20. The system of claim 17, wherein a series of calls and puts used to calculate an at-the-money volatility is limited to those calls and puts with delta values greater than or equal to a lower limit and less than or equal to an upper limit wherein call or put values outside the lower and upper limits exhibit unreliable implied volatility measurement behavior.

21. A computer program product for use with a computer, said computer program product comprising:

(a) a module for retrieving option-related data for a selected option chain;

(b) a module for calculating a plurality of parameters that summarize a theoretical implied volatility surface; and

(c) a module for displaying a first table representing the theoretical implied volatility surface and contemporaneously displaying a second table representing a market implied volatility surface.

22. The computer program product of claim 21;

wherein the plurality of parameters includes;

a plurality of at-the-money volatilities;

a plurality of intra-month slopes;

a plurality of intra-month derivatives; and

a plurality of out-of-the-money call and put effects.

23. The computer program product of claim 22, wherein the plurality of parameters includes a seasonal effect.

24. The computer program product of claim 22, wherein the plurality of parameters includes an earnings effect.

25. The computer program product of claim 22, wherein a series of calls and puts used to calculate an at-the-money volatility is limited to those calls and puts with delta values greater than or equal to a lower limit and less than or equal to an upper limit wherein call or put values outside the lower and upper limits exhibit unreliable implied volatility measurement behavior.

26. A data signal embodied in a carrier wave comprising:

instructions for receiving objects transmitted by carrier wave and a volatility surface-related data including;

(a) option-related data for a selected option chain;

(b) a plurality of parameters that summarize a theoretical implied volatility surface; and

(c) data for displaying a first table representing the theoretical implied volatility surface and contemporaneously displaying a second table representing a market implied volatility surface.