I have a problem on hand. I am trying to price illiquid options. I need the ATM Implied Volatility which I dont have. How do I determine this volatility from historical data? Please let me know. Regards
Why on earth would you want to get into "Illiquid" options. It defeats the purpose of investing / trading. You need liquidity to be able to get rid of them when you want to take out your profits..if any.
1) Multiply the historical volatility by a factor of 10. 2) Widen out the bid-ask spread you are willing to quote. 3) Wait for Citadel to quote a tighter market and then "lean on" them.
You CANNOT calculate the implied volatility by using historical data. Use an option calculator and solve for volatility. http://www.cboe.com/LearnCenter/OptionCalculator.aspx Mark