Yes, I asked them and indeed I was told that they use historical data + the order book to estimate IV, which is in turn converted to option prices using Black-Scholes. However they wouldn't share their exact estimation method. That is too bad, because it is impossible to obtain historical data for daily options from IG API. I was hoping that if I understood their approach I would be able to re-create their historical option prices, but that is a no-go as well.. This is all too bad, because as far as I know IG is the only place where you can do daily options trading on a wide range of products, it would have been great to have some data to backtest strategies.
Yes their longer term options (weekly and mothlies) are indeed lifted from the market, they just apply their spread to it. However the daily options are IG's own synthetic products, you can't find them anywhere else.