Course Name: Options Trading Strategies In Python: Advanced, Section No: 2, Unit No: 1, Unit type: Document
Dear community, I´m finding difficult to grasp the idea of implied volatility of a basket os stocks, do you have an example of that in excel? Best Regards!
Hi Guilherme.
The document mentioned in your query refers to calculating the Index Volatility and not the Implied Volatility.
The Index Volatility is just the volatility of a basket of assets which make up the index and can be found out using the matrix form (W_Transpose) * (variance-covariance matrix) * (W), where W is the portfolio weights of the assets.
We don't have a ready example in excel since its much easier to do it in Python, but here is an external resource you may refer to.
If you really did mean Implied Volatility and not Index Volatility, then please refer to this post here where reference has been given on how to go about calculating the Implied Volatility of the basket.
Hope this helps!
Hi Gaurav!
Thank you for the answer, I was refering to index volatility in the dispersion trading as you mentioned (sorry for the error there), I´ll be doing some exercises here to better get the concepts and use excel only in way to validate some numbers.
It´s great to have such this support from the community!
Hi Guilherme,
It's great that you are moving from excel to python! It gets really easy once you are familiar with the libraries. For example, the covariance matrix can be estimated simply by numpy.cov function.
Cheers!