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Options & Derivatives·Volatility Structures
Implied Vol vs. Realized Vol
9 min read
Two volatilities, two questions
Realized volatility is the volatility the underlying actually displayed over a past window — a number you measure. Implied volatility is the volatility figure the market is pricing into options today — a number you back out by inverting an option-pricing model. The gap between them, IV minus RV, is the variance risk premium that long-vol sellers harvest.