Theoretical value of options

Discussion in 'Options' started by ivymba, Oct 16, 2006.

  1. ivymba

    ivymba

    Is there a website with theoretical values for specific stock options thats based on a decent model with live results?
     
  2. MTE

    MTE

    Any theoretical model needs inputs to produce an output. Volatility is the only undefined input so your model is as good as the volatility estimate that you use.
     
  3. ivymba

    ivymba

    right, what I meant by good model, is that I am looking for a website with its own volatililty estimates giving me theoretical values for options on certain stocks.

    does ivolatility provide that?
     
  4. You're looking for the impossible. No web site can "guess" at a volatility. You can easily plug in historical volatility, but the outside factors are the ones that matter:

    1) Aquisition
    2) Earnings
    3) News Events

    Any of these can double or triple the IV of an equity.

    So, you're really trying to forward compute something that can't be done easily. The better approach is to look at the IV the market is giving you and decide if you agree or not.
     
  5. ubs

    ubs

  6. ubs

    ubs

    this is the q, right?

    "Is there a website with theoretical values for specific stock options thats based on a decent model with live results?"

    if so, then - there's one place to get it. if you know of other/better places then by all means let the person know.

    I've Garch tested investools tvals and found them relatively accurate - yourself?
     
  7. Since you can't directly solve the Black-Scholes or other option model for volatility, you must use the price that the market is implying for a given contract. Then you can use an algorithm like Newton-Raphson or the Method of Bisection to solve for the root value (within a given error limit.)

    I prefer the Method of Bisection since it can solve for non-continuous price/volatility curves or curves with inflection points such as can occur with American options. Newton-Raphson is a tangential technique and can generally be used for Euro-style options.