3 ms·
> 1. Observe market parameters (volatility of the underlying and risk free rate) 2. Plug into formula 3. Deduce a price for the option. In the FX market (inter
by blitzar 2y ago
> 1. Observe market parameters (volatility of the underlying and risk free rate) 2. Plug into formula 3. Deduce a price for the option.
In the FX market (interbank), the quoted and "traded" number is Implied Vol - the price of the option then follows from there (via the Black–Scholes model).