A "blended" volatility is usually the most recommended approach to deriving a
robust volatility input since it encompasses historical stock price information (from
historical volatility) as well as the market's expectations of your company's future
volatility through implied volatility (from the tradable call options).
After generating multiple scenarios for both historical and implied volatility, you
can assign a percentage weight to both your previously calculated historical
volatility and implied volatility. Based on the different volatilities selected and the
percentages assigned, the system will generate the resulting weighted average
volatility.
To calculate Average Volatility:
1. Historical Volatility and Implied Volatility must have already been calculated.
2. Enter the percent weight you want to apply to this historical
volatility. The total percentage between historical and implied volatility
must be equal to 100%.
3. Enter the percent weight you want to apply to this implied volatility.
The total percentage between historical and implied volatility must be equal
to 100%.
4. Click the Calculate button. The average volatility is calculated and
displayed to the right of the Calculate button.
To save the calculations:
- Click the Save to Selection button. The average volatility calculation is
removed from the page and ‘moved’ to the Average Volatility
Parameters section at the bottom of the page. Note: This information can
also be seen on the Your Selection page.
To remove saved calculations:
- Click the red Remove ‘X’. However, be aware that there is no confirmation
before it is removed.