Introduction to the Option Modeler
IA uses current market data along with interest and dividend values to calculate implied volatilities and option model prices. Use the Option Modeler to modify any of these pricing assumptions and recalculate the model prices. You can edit the model's volatility curve by adding and removing "volatility knots." The model prices and implied volatilities can be displayed on your trading page and in the Option Trader window.
To open the editor, on the Option Trader screen select an option and click the Edit Model icon on the toolbar.
The Option Modeler is composed of three sections: variables, parameters, and the volatility model. The components of these sections are described below.
Variables
The data you enter in the three input tables is used along with the underlying price and other parameters to calculate the model prices.
Use the Volatility Function table to enter the volatility and calculate the slope for a strike price. The values in this table correspond to the knots on the volatility profile.
Use the Dividend Schedule table to enter ex-dividend dates and their associated dividend amounts.
Use the Interest Rates table to enter term interest rates.
Parameters
The parameters across the bottom of the editor window, Expire in, Symbol-Expiry, Annual Interest Rate and PV Dividend are derived fields and are not editable.
You will see data for any options listed in the Option Chains table on the Option Editor.
The Expire in and Symbol-Expiry fields get their values from information on the Trading page.
The Annual Interest Rate value is calculated for an expiry based on the term and interest rate information.
The PV (Present Value) Dividend field is calculated using the Dividend Schedule and Interest Rates values.
Use to set the volatility profile as a function of the option strike price.
The horizontal axis is the strike price, and the vertical axis is the volatility.
The connected black knots can be used to specify a volatility model for a given option class and expiry. The numerical Strike and Volatility values for each knot are displayed in the Volatility Function table to the right of the model.
You can add/delete
knots to create a volatility profile that more accurately represents the
implied volatility data. To add a knot, point to where you would like
to add it, right click and select Insert Knot. To delete a knot, point
to the knot, right click and select Delete
Knot. To move a knot click on the knot and drag it. 
To refresh the volatility curve based calculated data, click New Fit.
The blue and red dots show implied volatility derived from the market data for calls and puts, respectively. Magenta indicates an overlap of put and call volatility.
If you don't see any implied volatility dots, you must subscribe to the market data then click Refresh Plot at the bottom of the Model Input window.
Dark blue and dark red dots are derived from closing prices.
To see the option details for a given implied volatility point, hold your mouse cursor over the point for a second. The system will display the option right, strike price and implied volatility for five seconds.
Compare volatility changes by saving and viewing historical profiles from the Model History window.
Other
Underlying Price Offset - set an absolute dollar value offset or a percent offset amount if desired.
Interest Rate Offset - set a percent offset off the interest rate if desired.
For details on configuring these pricing assumptions and viewing the results, see Setting the Option Model Inputs and Viewing the Option Model Price and Implied Volatility.