Implied volatility reduces diverse option prices to one number, marking Black-Scholes’ cultural imprint

Evidence

As was emphasized in chapter 6, the notion of “implied volatility” takes a multiplicity of market prices (the prices of puts and calls with different expiry dates and different strike prices, and the prices of more complicated options as well) and reduces them to a single number or small set of numbers. Options market participants may no longer perform Black-Scholes pricing, but their constant invocation of “implied volatility” -a notion that did not exist before the work of Black, Scholes, and Merton shows that work’s permanent imprint on their culture. — Donald MacKenzie, An Engine, Not a Camera, 1131

Categorization

• XREF: The compression of many prices into one number parallels the earlier ‘beta’ discussion — both are theory-derived summary statistics that reconfigure how markets are perceived and spoken about. — connects to: Option prices are routinely quoted in implied volatility, a purely theoretical construct — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1130; Implied volatility turned options of disparate stocks into one comparable metric. — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 122; Implied volatility concepts and calculation devices are constitutive of economic action — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 200

Broader Connections

• Option prices are routinely quoted in implied volatility, a purely theoretical construct #expands (0.90) — Donald MacKenzie, An Engine, Not a Camera, 1130