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Investor/RT Tour
Volatility and Black-Scholes
Calculation
See Also...
- Options Checklist
- Setting
Up an Options QuotePage
- Options Analysis Values Defined
- Equity and
Index Options Setup
Throughout Investor/RT, there are two methods to choose from when computing volatility:
The Close-to-Close Method and the Extreme Value Method. The Close-to-Close Method
compares the closing price with the closing price of the previous period, while the
Extreme Value Method uses the full range of highs and lows. The method used,
along with the number of periods used in the calculation, and the
periodicity (duration of
each period) may be set by the user in the Options Analysis Preferences.
The volatility is then used in computing the theoretical value of the
option using the Black-Scholes equation. The theoretical value can
be added to a quotepage which contains options.
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Close to Close
Method

Close to Close Method |
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Extreme Value
Method

Extreme Value Method |
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Black-Scholes
Formula

C = Theoretical
Value of the Option
S = Price of Underlying Stock
L = Strike Price
s (sigma) = Volatility of Underlying
r = annualized rate of return for a risk-free portfolio
t = time (in decimal fraction of a year) left in option
N( ) = Stardard Normal Function
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