volatility

Summary When computing a monthly strip of daily options it is never a good idea to approximate it with a daily option expiring in in the middle of the month (15'th day) as errors in value or implied volatility can be as high as 4%. Instead, it is better to take the daily option that expires after 13.9 days within a month (this halves the errors of the previous method). An even better approach would be to take option that expires depending on how far is the delivery month T - with this method the errors are reduced by a factor of 10 (0.