What is forward moneyness and how to calculate it?
$begingroup$
I'm now studying the concept "implied volatility", and my teacher gave us a figure about the implied volatility with respect to the moneyness which is expressed by $frac{ln(frac{K}{F})}{sigmasqrt{T}}$
, where $F$ should be the forward price at maturity of the underlying I think?
Based on my knowledge, the moneyness should be
$frac{S}{K}$
Could anyone tell me the meaning of the upper expression and the differences between these two kinds of moneyness?
implied-volatility
asked 6 hours ago
Francis GongFrancis Gong
61
New contributor
Francis Gong is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.
$endgroup$
add a comment |
$begingroup$
I'm now studying the concept "implied volatility", and my teacher gave us a figure about the implied volatility with respect to the moneyness which is expressed by $frac{ln(frac{K}{F})}{sigmasqrt{T}}$
, where $F$ should be the forward price at maturity of the underlying I think?
Based on my knowledge, the moneyness should be
$frac{S}{K}$
Could anyone tell me the meaning of the upper expression and the differences between these two kinds of moneyness?
implied-volatility
asked 6 hours ago
Francis GongFrancis Gong
61
New contributor
Francis Gong is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.
$endgroup$
$begingroup$
How to find $F$ ? If the stock pays no dividend then $F=S e^{r T}$.
$endgroup$
– Alex C
5 hours ago
1
$begingroup$
There might be a typo. It Should be probably have been $ln(F/K)$. Then the upper expression is known as the standardized momeyness
$endgroup$
– Sanjay
5 hours ago
add a comment |
$begingroup$
I'm now studying the concept "implied volatility", and my teacher gave us a figure about the implied volatility with respect to the moneyness which is expressed by $frac{ln(frac{K}{F})}{sigmasqrt{T}}$
, where $F$ should be the forward price at maturity of the underlying I think?
Based on my knowledge, the moneyness should be
$frac{S}{K}$
Could anyone tell me the meaning of the upper expression and the differences between these two kinds of moneyness?
implied-volatility
asked 6 hours ago
Francis GongFrancis Gong
61
New contributor
Francis Gong is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.
$endgroup$
I'm now studying the concept "implied volatility", and my teacher gave us a figure about the implied volatility with respect to the moneyness which is expressed by $frac{ln(frac{K}{F})}{sigmasqrt{T}}$
, where $F$ should be the forward price at maturity of the underlying I think?
Based on my knowledge, the moneyness should be
$frac{S}{K}$
Could anyone tell me the meaning of the upper expression and the differences between these two kinds of moneyness?
implied-volatility
implied-volatility
asked 6 hours ago
Francis GongFrancis Gong
61
New contributor
Francis Gong is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.
asked 6 hours ago
Francis GongFrancis Gong
61
New contributor
Francis Gong is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.
asked 6 hours ago
Francis GongFrancis Gong
61
New contributor
Francis Gong is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.
asked 6 hours ago
Francis GongFrancis Gong
61
asked 6 hours ago
Francis GongFrancis Gong
61
61
New contributor
Francis Gong is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.
New contributor
Francis Gong is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.
Francis Gong is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.
$begingroup$
How to find $F$ ? If the stock pays no dividend then $F=S e^{r T}$.
$endgroup$
– Alex C
5 hours ago
1
$begingroup$
There might be a typo. It Should be probably have been $ln(F/K)$. Then the upper expression is known as the standardized momeyness
$endgroup$
– Sanjay
5 hours ago
add a comment |
$begingroup$
How to find $F$ ? If the stock pays no dividend then $F=S e^{r T}$.
$endgroup$
– Alex C
5 hours ago
1
$begingroup$
There might be a typo. It Should be probably have been $ln(F/K)$. Then the upper expression is known as the standardized momeyness
$endgroup$
– Sanjay
5 hours ago
$begingroup$
How to find $F$ ? If the stock pays no dividend then $F=S e^{r T}$.
$endgroup$
– Alex C
5 hours ago
$begingroup$
How to find $F$ ? If the stock pays no dividend then $F=S e^{r T}$.
$endgroup$
– Alex C
5 hours ago
1
1
$begingroup$
There might be a typo. It Should be probably have been $ln(F/K)$. Then the upper expression is known as the standardized momeyness
$endgroup$
– Sanjay
5 hours ago
$begingroup$
There might be a typo. It Should be probably have been $ln(F/K)$. Then the upper expression is known as the standardized momeyness
$endgroup$
– Sanjay
5 hours ago
add a comment |
1 Answer
1
active
oldest
votes
$begingroup$
The definition of moneyness is not completely standardized, you can see different definitions in the literature:
- the simple moneyness is $frac{S}{K}$ (in some cases you will see $frac{K}{S}$)
- the log moneyness is $ln frac{S}{K}$
- the standardized log moneyness$frac{ln(S/K)}{sigmasqrt T}$
If the forward price $F$ is used in place of the underlying price $S$ you have (three definitions of) the forward moneyness. The forward moneyness is useful because it is more consistent with the way the Black Scholes formula works, it is more natural.
How to find $F$ ? If the stock pays no dividend then $F=S e^{r T}$. You can also find $F$ by comparing the prices of puts and calls.
answered 5 hours ago
Alex CAlex C
5,88111022
$endgroup$
add a comment |
Your Answer
StackExchange.ifUsing("editor", function () {
return StackExchange.using("mathjaxEditing", function () {
StackExchange.MarkdownEditor.creationCallbacks.add(function (editor, postfix) {
StackExchange.mathjaxEditing.prepareWmdForMathJax(editor, postfix, [["$", "$"], ["\\(","\\)"]]);
});
});
}, "mathjax-editing");
StackExchange.ready(function() {
var channelOptions = {
tags: "".split(" "),
id: "204"
};
initTagRenderer("".split(" "), "".split(" "), channelOptions);
StackExchange.using("externalEditor", function() {
// Have to fire editor after snippets, if snippets enabled
if (StackExchange.settings.snippets.snippetsEnabled) {
StackExchange.using("snippets", function() {
createEditor();
});
}
else {
createEditor();
}
});
function createEditor() {
StackExchange.prepareEditor({
heartbeatType: 'answer',
autoActivateHeartbeat: false,
convertImagesToLinks: false,
noModals: true,
showLowRepImageUploadWarning: true,
reputationToPostImages: null,
bindNavPrevention: true,
postfix: "",
imageUploader: {
brandingHtml: "Powered by u003ca class="icon-imgur-white" href="https://imgur.com/"u003eu003c/au003e",
contentPolicyHtml: "User contributions licensed under u003ca href="https://creativecommons.org/licenses/by-sa/3.0/"u003ecc by-sa 3.0 with attribution requiredu003c/au003e u003ca href="https://stackoverflow.com/legal/content-policy"u003e(content policy)u003c/au003e",
allowUrls: true
},
noCode: true, onDemand: true,
discardSelector: ".discard-answer"
,immediatelyShowMarkdownHelp:true
});
}
});
Francis Gong is a new contributor. Be nice, and check out our Code of Conduct.
Sign up or log in
StackExchange.ready(function () {
StackExchange.helpers.onClickDraftSave('#login-link');
var $window = $(window),
onScroll = function(e) {
var $elem = $('.new-login-left'),
docViewTop = $window.scrollTop(),
docViewBottom = docViewTop + $window.height(),
elemTop = $elem.offset().top,
elemBottom = elemTop + $elem.height();
if ((docViewTop elemBottom)) {
StackExchange.using('gps', function() { StackExchange.gps.track('embedded_signup_form.view', { location: 'question_page' }); });
$window.unbind('scroll', onScroll);
}
};
$window.on('scroll', onScroll);
});
Sign up using Google
Sign up using Facebook
Sign up using Email and Password
Post as a guest
Required, but never shown
StackExchange.ready(
function () {
StackExchange.openid.initPostLogin('.new-post-login', 'https%3a%2f%2fquant.stackexchange.com%2fquestions%2f43596%2fwhat-is-forward-moneyness-and-how-to-calculate-it%23new-answer', 'question_page');
}
);
Post as a guest
Required, but never shown
1 Answer
1
active
oldest
votes
1 Answer
1
active
oldest
votes
active
oldest
votes
active
oldest
votes
$begingroup$
The definition of moneyness is not completely standardized, you can see different definitions in the literature:
- the simple moneyness is $frac{S}{K}$ (in some cases you will see $frac{K}{S}$)
- the log moneyness is $ln frac{S}{K}$
- the standardized log moneyness$frac{ln(S/K)}{sigmasqrt T}$
If the forward price $F$ is used in place of the underlying price $S$ you have (three definitions of) the forward moneyness. The forward moneyness is useful because it is more consistent with the way the Black Scholes formula works, it is more natural.
How to find $F$ ? If the stock pays no dividend then $F=S e^{r T}$. You can also find $F$ by comparing the prices of puts and calls.
answered 5 hours ago
Alex CAlex C
5,88111022
$endgroup$
add a comment |
$begingroup$
The definition of moneyness is not completely standardized, you can see different definitions in the literature:
- the simple moneyness is $frac{S}{K}$ (in some cases you will see $frac{K}{S}$)
- the log moneyness is $ln frac{S}{K}$
- the standardized log moneyness$frac{ln(S/K)}{sigmasqrt T}$
If the forward price $F$ is used in place of the underlying price $S$ you have (three definitions of) the forward moneyness. The forward moneyness is useful because it is more consistent with the way the Black Scholes formula works, it is more natural.
How to find $F$ ? If the stock pays no dividend then $F=S e^{r T}$. You can also find $F$ by comparing the prices of puts and calls.
answered 5 hours ago
Alex CAlex C
5,88111022
$endgroup$
add a comment |
$begingroup$
The definition of moneyness is not completely standardized, you can see different definitions in the literature:
- the simple moneyness is $frac{S}{K}$ (in some cases you will see $frac{K}{S}$)
- the log moneyness is $ln frac{S}{K}$
- the standardized log moneyness$frac{ln(S/K)}{sigmasqrt T}$
If the forward price $F$ is used in place of the underlying price $S$ you have (three definitions of) the forward moneyness. The forward moneyness is useful because it is more consistent with the way the Black Scholes formula works, it is more natural.
How to find $F$ ? If the stock pays no dividend then $F=S e^{r T}$. You can also find $F$ by comparing the prices of puts and calls.
answered 5 hours ago
Alex CAlex C
5,88111022
$endgroup$
The definition of moneyness is not completely standardized, you can see different definitions in the literature:
- the simple moneyness is $frac{S}{K}$ (in some cases you will see $frac{K}{S}$)
- the log moneyness is $ln frac{S}{K}$
- the standardized log moneyness$frac{ln(S/K)}{sigmasqrt T}$
If the forward price $F$ is used in place of the underlying price $S$ you have (three definitions of) the forward moneyness. The forward moneyness is useful because it is more consistent with the way the Black Scholes formula works, it is more natural.
How to find $F$ ? If the stock pays no dividend then $F=S e^{r T}$. You can also find $F$ by comparing the prices of puts and calls.
answered 5 hours ago
Alex CAlex C
5,88111022
answered 5 hours ago
Alex CAlex C
5,88111022
answered 5 hours ago
Alex CAlex C
5,88111022
answered 5 hours ago
Alex CAlex C
5,88111022
5,88111022
add a comment |
add a comment |
Francis Gong is a new contributor. Be nice, and check out our Code of Conduct.
Francis Gong is a new contributor. Be nice, and check out our Code of Conduct.
Francis Gong is a new contributor. Be nice, and check out our Code of Conduct.
Francis Gong is a new contributor. Be nice, and check out our Code of Conduct.
Thanks for contributing an answer to Quantitative Finance Stack Exchange!
- Please be sure to answer the question. Provide details and share your research!
But avoid …
- Asking for help, clarification, or responding to other answers.
- Making statements based on opinion; back them up with references or personal experience.
Use MathJax to format equations. MathJax reference.
To learn more, see our tips on writing great answers.
Sign up or log in
StackExchange.ready(function () {
StackExchange.helpers.onClickDraftSave('#login-link');
var $window = $(window),
onScroll = function(e) {
var $elem = $('.new-login-left'),
docViewTop = $window.scrollTop(),
docViewBottom = docViewTop + $window.height(),
elemTop = $elem.offset().top,
elemBottom = elemTop + $elem.height();
if ((docViewTop elemBottom)) {
StackExchange.using('gps', function() { StackExchange.gps.track('embedded_signup_form.view', { location: 'question_page' }); });
$window.unbind('scroll', onScroll);
}
};
$window.on('scroll', onScroll);
});
Sign up using Google
Sign up using Facebook
Sign up using Email and Password
Post as a guest
Required, but never shown
StackExchange.ready(
function () {
StackExchange.openid.initPostLogin('.new-post-login', 'https%3a%2f%2fquant.stackexchange.com%2fquestions%2f43596%2fwhat-is-forward-moneyness-and-how-to-calculate-it%23new-answer', 'question_page');
}
);
Post as a guest
Required, but never shown
Sign up or log in
StackExchange.ready(function () {
StackExchange.helpers.onClickDraftSave('#login-link');
var $window = $(window),
onScroll = function(e) {
var $elem = $('.new-login-left'),
docViewTop = $window.scrollTop(),
docViewBottom = docViewTop + $window.height(),
elemTop = $elem.offset().top,
elemBottom = elemTop + $elem.height();
if ((docViewTop elemBottom)) {
StackExchange.using('gps', function() { StackExchange.gps.track('embedded_signup_form.view', { location: 'question_page' }); });
$window.unbind('scroll', onScroll);
}
};
$window.on('scroll', onScroll);
});
Sign up using Google
Sign up using Facebook
Sign up using Email and Password
Post as a guest
Required, but never shown
Sign up or log in
StackExchange.ready(function () {
StackExchange.helpers.onClickDraftSave('#login-link');
var $window = $(window),
onScroll = function(e) {
var $elem = $('.new-login-left'),
docViewTop = $window.scrollTop(),
docViewBottom = docViewTop + $window.height(),
elemTop = $elem.offset().top,
elemBottom = elemTop + $elem.height();
if ((docViewTop elemBottom)) {
StackExchange.using('gps', function() { StackExchange.gps.track('embedded_signup_form.view', { location: 'question_page' }); });
$window.unbind('scroll', onScroll);
}
};
$window.on('scroll', onScroll);
});
Sign up using Google
Sign up using Facebook
Sign up using Email and Password
Post as a guest
Required, but never shown
Sign up or log in
StackExchange.ready(function () {
StackExchange.helpers.onClickDraftSave('#login-link');
var $window = $(window),
onScroll = function(e) {
var $elem = $('.new-login-left'),
docViewTop = $window.scrollTop(),
docViewBottom = docViewTop + $window.height(),
elemTop = $elem.offset().top,
elemBottom = elemTop + $elem.height();
if ((docViewTop elemBottom)) {
StackExchange.using('gps', function() { StackExchange.gps.track('embedded_signup_form.view', { location: 'question_page' }); });
$window.unbind('scroll', onScroll);
}
};
$window.on('scroll', onScroll);
});
Sign up using Google
Sign up using Facebook
Sign up using Email and Password
Sign up using Google
Sign up using Facebook
Sign up using Email and Password
Post as a guest
Required, but never shown
Required, but never shown
Required, but never shown
Required, but never shown
Required, but never shown
Required, but never shown
Required, but never shown
Required, but never shown
Required, but never shown
$begingroup$
How to find $F$ ? If the stock pays no dividend then $F=S e^{r T}$.
$endgroup$
– Alex C
5 hours ago
1
$begingroup$
There might be a typo. It Should be probably have been $ln(F/K)$. Then the upper expression is known as the standardized momeyness
$endgroup$
– Sanjay
5 hours ago