Stock market trends and the volatility premium

摘要

The implied volatility of a stock index is one of the key descriptive variables of the market's behavior. Its importance often is underestimated despite its huge impact on the price of the option and, thereby, the profit or loss on a trade. Studies have analyzed how the volatility implied by option prices relates to the subsequent realized volatility (see "Implied to realized," right). Despite all the statistical problems such as overlapping time intervals, bid/ask spreads of the options, etc., experts usually agree that a volatility premium exists: The implied often is higher than the corresponding realized volatility.