Implied volatility turned options of disparate stocks into one comparable metric.

Evidence

Central was the notion of “implied volatility,” calculated by running the Black-Scholes model “backward”: using observed option prices to infer, by iterative solution, the stock volatilities they implied. “Implied volatility” reduced the complexity of option trading (different stocks with different, changing, prices; puts and calls; different expirations and strike prices) to a simple common metric. — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 122

Categorization

• DEFINE: Clear concise definition of implied volatility — running Black-Scholes backward — and why it mattered as a coordinating metric.
• XREF: connects to: Implied volatility reduces diverse option prices to one number, marking Black-Scholes’ cultural imprint — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1131; Option prices are routinely quoted in implied volatility, a purely theoretical construct — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1130

Related

• Implied volatility reduces diverse option prices to one number, marking Black-Scholes’ cultural imprint (similarity 0.94)
• Option prices are routinely quoted in implied volatility, a purely theoretical construct (similarity 0.92)
• Implied volatility concepts and calculation devices are constitutive of economic action (similarity 0.87)
• Option pricing theory did not describe markets but remade them in its own image (similarity 0.85)
• Pre-Black-Scholes option models relied on unmeasurable parameters (similarity 0.84)
• Unobservable volatility means the Black-Scholes-Merton model has no unique predicted price. (similarity 0.82)
• The option price is independent of the stock’s expected return. (similarity 0.82)
• Option price must equal the cost of a continuously adjusted replicating portfolio. (similarity 0.82)
• Economists favored Black-Scholes-Merton for its minimal unobservable parameters and efficient-market grounding. (similarity 0.82)
• Black-Scholes-Merton pricing fit observed options data only approximately at launch. (similarity 0.82)
• The post-1987 volatility skew became a permanent feature of index options (similarity 0.82)
• Black-Scholes legitimized options despite fitting prices only approximately (similarity 0.82)
• Option prices equal the cost of a portfolio that replicates the option’s payoff (similarity 0.81)
• Organized options trading alone could explain post-model price convergence to Black-Scholes (similarity 0.81)
• Option market prices initially diverged from the Black-Scholes model but converged (similarity 0.81)

Broader Connections

• Implied volatility reduces diverse option prices to one number, marking Black-Scholes’ cultural imprint #corroborates (0.92) — Donald MacKenzie, An Engine, Not a Camera, 1131
• Option prices are routinely quoted in implied volatility, a purely theoretical construct #expands (0.80) — Donald MacKenzie, An Engine, Not a Camera, 1130