Mastering Python for Finance - Second Edition

Calculating the volatilities

The volatility calculation for the chosen options is given as follows:

Since we have already computed the contributions for the summation term, this formula can be simply written in Python as the calculate_volatility() function:

In [ ]:    def calculate_volatility(pd_contrib, t, f, k0):        """        Calculate the volatility for a single-term option        :param pd_contrib: pandas DataFrame             containing contributions by strike        :param t: time to settlement of the option        :param f: forward index level        :param k0: immediate strike price below the forward level        :return: volatility as Decimal object        """ term_1 = Decimal(2/t)*pd_contrib['contrib'].sum() ...