Editing Implied volatility (section)

{{Short description|Financial mathematical measure}}
In [[financial mathematics]], the '''implied volatility''' ('''IV''') of an [[option (finance)|option]] contract is that value of the [[Volatility (finance)|volatility]] of the [[underlying]] instrument which, when input in an [[Valuation of options|option pricing model]] (usually [[Black–Scholes model|Black–Scholes]]), will return a theoretical value equal to the price of the option.  A non-option [[financial instrument]] that has embedded optionality, such as an [[interest rate cap]], can also have an implied volatility.  Implied volatility, a forward-looking and subjective measure, differs from historical volatility because the latter is calculated from known past returns of a [[security (finance)|security]]. To understand where implied volatility stands in terms of the underlying, '''implied volatility rank''' is used to understand its implied volatility from a one-year high and low IV.