Typically exchange traded options prices are used for deriving implied option volatilities.

Derivatives ONE features an implied volatility calculator based on the Newton Raphson iterative method of calculating implied volatility.

Firstly, enter the option details including the option premium (ie the option price or value):

The system will them output the annualized volatility based on the option inputs:

You can test this value by using it in the European Option calculator to determine the option price.

Typically, daily data is used and the standard deviation of the daily log of price movements is the volatility. If daily data is used then a daily volatility is the output from a calculation. For input into an option pricing model such as Black Scholes the annualized volatility is required. The annualized volatility is simply the daily volatility multiplied by the square root of the number of trading days in the year (typically 250 or 252 trading days in the year are assumed).
One issue to note is that the daily price series must be cleaned of any jumps due to dividend payments. When a stock trades ex-dividend its price will gap down by the approximate amount of the dividend and since this is a price drop not due to the natural volatility of the asset all dividends must be stripped out of the price series (normally by adding back the dividend payment amount on all  the  ex-dividend days).

Derivatives ONE features a Historic Volatility Calculator:

First enter the price series separated by either a comma or a line break:

Simply, click the Calculate Button and the daily and annualized volatility are calculated:

In addition, various statistics on the price series are available:

Sign Up for the Volatility Calculators

In addition there is a CFA Forum for asking for help with CFA material.

Spot Price :
The market price of the underlying asset on the valuation date. This can be a difficult input to estimate for options on illiquid assets, however under normal circumstances the closing market price can usually be used

Strike Price :
This is the price level at which the option holder has the right to buy or sell the underlying asset. It is the most straightforward input as it will always be given in the option contract.

Time to Maturity :
The time (in years) until the option expires and the holder is no longer entitled to exercise the option.

Interest Rate :
The risk free interest rate for the period until the option expires. The risk free rate should typically be a zero coupon government bond yield.

Volatility :
Volatility is probably the most important single input to any option pricing model. There are numerous methods for estimating volatility.
Historic volatility entails using historic price data for share price movements. A key issue is how far into the past to collect data from. A useful rule of thumb is to collect data from as far back as the options term (eg a option with a 5 year life would require an input of historic volatility calculated from the last 5 years of historic data).
Historic volatility is often considered as flawed as it assumes the past will reflect the future – thus several forward-looking measures of volatility can be more powerful and accurate:
Implied Volatility is the volatility implied by the market price of traded options. As the price is already known and the volatility (which is typically an input) is unknown the pricing model is reversed to determine the volatility. When using the implied volatility it is important to be aware of the volatility surface. The volatility surface is the 3 dimensional representation of the relationship between volatility, option life and exercise price. Thus to use implied volatility the option from which the volatility is implied should have a similar life and exercise price (or ratio of market price to exercise price) as the option being valued.
Other models such as ARCH, EWMA, GARCH use historic data and condition the data using factors such as mean reversion to acheive a more accurate volatility forecast.

Yield (optional input).
The average yield generated by the underlying asset for the life of the option. This can be either a dividend (for a stock or stock index) or the income generated by a commodity.
It is often difficult to forecast the yield for the entire option life so the current yield of the asset is often used.

Forward Start Options are often combined in a series into a Ratchet Option (also called cliquet or reset options) with each option commencing with an at-the-money strike when the previous option expires. The result of this is a single option which allows the investor to lock in profits over the life of the option.

Derivatives ONE features a free option valuation tool

For example, a fund manager might purchase an exchange option if he is sure that he wants to hold one of two stocks but is unsure of which. The option would then allow the fund manager to hold one stock and then switch it for the other depending on the relative performance of the two stocks during the option’s life.

Exchange options require numerous inputs to the valuation model in addition to the Black Scholes inputs. Two volatilities, spot prices and yields must be input (one for each asset) The correlation between the assets must also be be estimated, the correlation is a measure of the dependency of the two assets, if asset A moves up or down in direct tandem with Asset B then the two assets will have a correlation of 1 (or 100%). The higher the correlation of the assets the lower the option value will be.

Derivatives ONE features a free option valuation tool.

For example, Party A is currently paying a floating rate of interest but wishes to convert that to a fixed rate of interest. Party B is currently paying a fixed rate of interest but wishes to pay a floating rate. The two parties can enter into an interest rate swap whereby Party A pays a fixed rate to B in exchange for a floating rate of interest. The net result (as shown in the example below) is that Party A ends up paying a floating rate of interest and Party B ends up with a fixed rate of interest.

Interest Rate Swap Example

Derivatives ONE features a free valuation tool for Interest Rate Swaps.

There are two types of hedge – cash flow hedge and fair value hedge. A cash flow hedge matches cash flows from an instrument with predictable cash flows from a hedging instrument. A fair value hedge matches the changes in fair value in the underlying insturmnet with the cahnges in fair value of the hedging instrument.

To qualify for hedge accounting a hedging effectiveness of 0.80 – 1.25 is normally required. This hedge effectiveness is calculated by performing a regression analysis on the underlying instrument and the hedge.

Derivatives ONE provides a free set of tool which can assist in the calculation of hedge effectiveness by valuing a range of cash flow instruments (such as  interest rate swaps) and a wide range of derivative instruments.

To qualify for hedge accounting under 133, the hedge effectiveness should typically be at least 80%, hedge effectiveness is the amount the hedge (the derivative) changes with the change in value to the underlying asset.
Derivative ONE features a  valuation tools for financial derivatives.
Sign Up for Derivatives Valuation Tools

Cross currency swaps can also exchange two fixed rate streams in different currencies, or alternatively two floating rate streams in different currencies.

Derivatives ONE features a free valuation tool for Cross Currency Swaps.
Sign Up for Swap Valuation Tools