BS options val, page-106

flyboy77

If any wants to bother here are some methods to calculate "historical" price volatility to input into the Black-Scholes calculator.

http://www.financialwisdomforum.org/gummy-stuff/BS-Volatility.htm

Future "implied" volatility can also be calculated by working backwards using the actual current price of the option. If I understand it correctly the current option price is related to the implied volatility through the formula. The fact that you have calculated the value of CDV options to be more than their market price based on a share price volatility of 90% would mean the actual share price volatility is less than 90%.

For anyone interested in the ideas behind volatility premiums here is a hard core paper written in 2007. It would be interesting to sit down with that guy and ask him how all that volatility trading played out during the GFC.

http://pages.stern.nyu.edu/~dbackus/Disasters/Eraker vol pr Dec 07.pdf

My impression of the current stock indexes is that volatility has been supressed by algorithmic trading at the moment. The current lack of volatility is unnatural in the context of the present financial and political uncertainty and represents a long run danger as "real" option premiums will be supressed along with any swap insurance instruments that might go along with them. Volatility is a natural part of any market so it shouldn't be artificially supressed. Eshmun