In financial mathematics, the implied volatility of an option contract is that value of the volatility of the underlying instrument which, when input in an option pricing model(such as Black-Scholes) will return a theoretical value equal to the current market 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.
Read more about Implied Volatility: Motivation, Solving The Inverse Pricing Model Function, Implied Volatility As Measure of Relative Value, Implied Volatility As A Price, Non-constant Implied Volatility, Volatility Instruments
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—Henry David Thoreau (1817–1862)