Project Title: Using Black-Scholes' to Determine the Difference Between Historical and Implied Volatility
BASIS Advisor: Mr. Linhares
Internship Location: Cisco Systems
Onsite Mentor: Mr. Arun Athavale
In my Senior Project, I will work with Cisco Systems to find the differences between implied and historical volatility in various sectors by using corresponding sector ETF options. The volatility measure is essential to the accurate modeling of markets. Substantial research continues to occur in this field motivated by the necessity of banks quoting options. I will solve for implied volatility by reversing the Nobel-prize winning equation Black-Scholes and compare that to the standard deviation of an ETF which represents historical volatility. I will also discuss potential reasons for the differences in historical and implied volatility in various sectors by explaining market trends.
My Posts
Week 12: Finished + paper
May 07, 2019
Hello Blog readers, This week I finished my senior project and my slides which I discussed with both my advisors. It feels bittersweet because doing this senior project was awesome. Paper: Senior Project Presentation: Senior Project
Week 11: Almost done
May 04, 2019
Hello Blog Readers, Last week, I finished my final implied volatility calculations, my presentation (which I uploaded on canvas), and the research paper I am writing is almost complete. I went and talked with Mr. Linhares and got my slides reviewed. Many changes were made according to his recommendation. I would like to thank Mr. […]
Week 10:
Apr 29, 2019
Hello Blog readers, This week, I finished collecting my 3rd week of data. Then I calculated implied volatility and created and started practicing my presentation. Sorry if this post is short but I am currently working on a paper analyzing my findings.
Week 9: Taking more data
Apr 22, 2019
Hello Blog readers, This week I took data once again. However, I have still not processed this data and I will update you guys next week on how close implied volatility is to the 30-day historical volatility. I have also started making my slides to show my inside advisor once spring break is over. This […]
Week 8: Continuing taking my data
Apr 15, 2019
Hello Blog readers, This week I have continued to take my data. Many problems arose regarding the functionality of the risk-free rate and dividend payments but I have resolved them to a sufficient degree. Although this book isn’t on my syllabus, I started reading Basic Black-Scholes by Timothy Crack, literally the best book there is […]
Week 7: Interesting findings
Apr 07, 2019
Hello blog readers, This week I started tracking values and started calculating implied volatilities for options expiring on April 12th. So far the implied volatility has been staying remarkably close to the 30 day historical. A problem I am having is adding in a discounted dividend into the formula which I will hopefully figure out […]
Week 6: Running into Trouble
Apr 01, 2019
Hello Blog Readers, This week I started taking my values. I have taken values of these different indicators: Spot Price: Strike Price: Expiration Date: Call OI: Put OI: Call: Put: Implied Volatility: Historical Volatility (30 days): I have pulled these values of Nasdaq.com, and the CBOE. I took me nearly 3 hours just […]
Week 5: Getting Ready for my Practice Trial
Mar 24, 2019
Hello all blog readers, This week I conceptually discussed Black-Scholes with my internal advisor. He explained to me how Black-Scholes was customized to fit in with the Physics heat equation and how numerical boundaries apply to each situation. Now that I have fully understood Black-Scholes, I will be conducting a practice experiment this following week. […]
Week 4: Physics Heat Equation
Mar 17, 2019
Hello all blog readers, This week, I started discussing with my internal advisor on how to reverse Black-Scholes. First, we discussed the physics heat equation and started solving the differential equation. In order to solve this equation, we had to make some mathematical assumptions and use the Fourier series to solve the […]
Week 3: More Readings
Mar 09, 2019
Hello Blog Readers, Today I will be discussing the last of my readings (From next week onwards I will begin discussing with my internal advisor how to reverse Black-Scholes). My two readings this week were “Volatility Definition” by Investopedia and “On the Boness and Black-Scholes Models for Valuation of Call Options.” “Volatility definition” explains how […]
Week 2: Volatility
Feb 26, 2019
Hello blog readers, Since my project is literally about finding and discussing differences between implied and historical volatility in various sectors, I believe it is important to learn about option valuation first. Therefore, this week, I spent my time reading option evaluation by Investopedia. Intrinsic value, time to expiration (or time value), volatility, interest rates […]
Contextualizing Black-Scholes
Feb 19, 2019
Hello all blog readers, Today I will discuss my readings “On Valuing American Call Options with the Black-Scholes European Formula” and “Tests of the Black-Scholes and Cox Call Option Valuation Models: Discussion” The reason I have chosen the first reading is because I believe I must learn about the initial assumptions of Black-Scholes. I have […]