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What is Implied Volatility and Risk-Neutral Density about?

The document discusses the limitations of historical volatility in Value at Risk (VaR) calculations and advocates for the use of implied volatility from options as a more accurate, forward-looking measure. It critiques the Black-Scholes model for its assumptions of constant volatility and normal distribution, leading to inaccuracies in option pricing, and introduces concepts like volatility smile, skew, and term structure. Additionally, it presents a model-free approach using Risk-Neutral Density (RND) and

Author

Nitesh Kumar

Language

EN