How is forward vol computed from total variance?

sigma_fwd(T1,T2) = sqrt((sigma(T2)^2*T2 - sigma(T1)^2*T1)/(T2-T1)). This is the break-even vol of a forward-start variance swap covering the period [T1,T2].

What is the practical use of forward vol?

Forward vol prices forward-start options, cliquet products, and variance swaps. It is also used to extract the market's expectation of future volatility from current option prices.

Forward Volatility from Term Structure Calculator

Derive forward implied volatility from the term structure of ATM implied vol. Computes the implied vol of a forward-start option beginning at T1 and expiring at T2.

Use the full interactive calculator below, or

Related Calculators

ATM Vol Term Structure

Finance Ultra-depth

Risk Reversal 25D

Finance Ultra-depth

Variance Swap Fair Value

Finance Ultra-depth

Forward Volatility from Term Structure Calculator

Related Calculators

Frequently Asked Questions

How is forward vol computed from total variance?

What is the practical use of forward vol?