Implicit volatility - Financial definition
Financial acronyms
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Concise definition of the term implicit volatility
Implicit volatility is the volatility calculated by inputting the premium, strike, asset price, maturity and interest rate(s) into an option pricing model. In other words, it is the market’s perception of future volatility as implied in current option prices.
Comprehensive definition of the term implicit volatility
Implied volatility is an early indicator of future price movements expected for the asset, and one of the essential parameters when valuing an option.
As it is not observable, it is calculated by iteration using an options pricing model like the Black & Scholes model. The correct value for implied volatility is the one where the option price as calculated with the model corresponds to the option's market price.