“Is there a source of industry sector volatility statistics that would be appropriate for stock option valuations?” asks Plante & Moran subscriber Mark Blazevic, CPA/ABV, CFA (Southfield, MI) last week. We sent his query to BVR expert contributors and professors Ashok Abbott (West Virginia University) and Aswath Damodaran (NYU), who responded as follows:
“I have the industry average equity and firm variances under the ‘Updated Data’ link on my website,” writes Professor Damodaran, “I use them for option pricing all the time.”
“Historical and implied volatility data are available from the Chicago exchanges (CBOE) for the frequently-traded options,” adds Professor Abbott. “If sector-specific volatilities are desired, there are two possible approaches: (1) create a volatility index for a portfolio of options for stocks belonging to that sector (equally weighted/value weighted); or (2) estimate a regression equation for the implied volatility for the stocks in the desired sector.
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