May 21st, 2014, 8:33 pm
When you calculate implied volatility for an option, you have all the other inputs save volatility and find the value of volatilty for which the model price matches the observed priceif the derivative depends on zero-coupon bond price (or a proxy like interest rate) as well as stock price, there will be what 2 ? 3 ? unknown inputs (stock price volatility, the correlation, and perhaps interest rate volatility also), but you only have the one price, so I assume to find the implied correlation you would have to somehow assign values to the stock price volatility and perhaps interest rate volatility also ?