What is forward moneyness and how to calculate it?












1












$begingroup$


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







share|improve this question







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Francis Gong is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
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  • $begingroup$
    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
















1












$begingroup$


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







share|improve this question







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














1












1








1





$begingroup$


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







share|improve this question







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






share|improve this question







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.











share|improve this question







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.









share|improve this question




share|improve this question






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

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Francis Gong is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
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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


















  • $begingroup$
    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










1 Answer
1






active

oldest

votes


















2












$begingroup$

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.






share|improve this answer









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    $begingroup$

    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.






    share|improve this answer









    $endgroup$


















      2












      $begingroup$

      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.






      share|improve this answer









      $endgroup$
















        2












        2








        2





        $begingroup$

        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.






        share|improve this answer









        $endgroup$



        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.







        share|improve this answer












        share|improve this answer



        share|improve this answer










        answered 5 hours ago









        Alex CAlex C

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