Thanks - yes, I had actually seen that page (did a fair bit of googling before posting here), though didn't find much actionable info. Mostly just confused commenters talking past each other.
I'm not quite sure which part of my question is causing the confusion, so I'll just re-state it as simply as possible. Here's the data that my IB real-time data stream pulls into Excel: When the Bid changes (let's use the 17-Strike) from $0.50 to $0.75, the new Bid ($0.75) is updated by IB's data stream IMMEDIATELY / in real-time, BUT the IV.B value remains at 26.0% until it is updated (every ~2 mins according to IB). What I want to know is how I can get the new IV.B value in real-time? As explained, IB only updates that value every few minutes, but I want it in real-time. So I want to know whether there is a formula I can plug into Excel -- and if so, just what that formula is / what inputs it needs -- that will update the IV.B in real-time.
I'll see what I can come up with in a day. Also, maybe IB will tell you what they use in their calculations...have you asked them?
Yes, I wrote to them yesterday asking the exact same thing. The only info I have to this point is what they'd written to me a few months ago about them using binomial trees and updating the IV values in TWS / data stream every ~2 mins. I emailed them today asking how I could do it myself in the hopes of having real-time IV values.
My understanding is that BS is a better option for European style options (rather than American, which is what I'm dealing with)...but would each model result with dramatically different IV figures? If not, then I'm not too picky...
Ok, I'll look into it, just wanted to know all my options first. I'll probably post again within an hour or so. Also, are you using a 'powerful' (Memory, Speed) computer?
You should start with the simpler case which computes IV for European options using the traditional methods. There is ample literature on that, such as: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=952727