Implied Volatility

In the realm of financial mathematics, implied volatility (IV) pertains to the estimated level of volatility in the underlying asset. This level of volatility, when employed in an option pricing model like Black–Scholes, yields a theoretical value that matches the present market price of the option in question. It's worth noting that implied volatility isn't exclusive to option contracts; even non-option financial instruments with embedded optionality, such as interest rate caps, can possess implied volatility. As a forward-looking and subjective metric, implied volatility stands in contrast to historical volatility, which derives from known past returns of a security.

To gauge where implied volatility stands relative to the underlying asset, market participants often refer to implied volatility rank. This measure aids in understanding the implied volatility's position within the context of its highest and lowest levels over the past year.

For a more comprehensive understanding of implied volatility on Uniswap v3, we recommend reading the following articles:

Calculating Implied Volatility from Uniswap V2 & V3Medium

On-chain Volatility and Uniswap v3Medium