impliedVolBS: Implied Volatility Bisection Method

In GARPFRM: Global Association of Risk Professionals: Financial Risk Manager

Description

Bisection method to compute the implied volatility of a european option using the Black-Scholes-Merton model.

Usage

impliedVolBS(vol_range, S0, K, r, q, ttm, P_mkt, type,
  tol = .Machine$double.eps, max_it = 200)

Arguments

vol_range	c(lower, upper) the lower and upper bounds of the implied volatility range to search
S0	underlying asset price
K	strike price
r	risk free rate
q	continuous dividend yield rate for options on stocks or stock indices paying a dividend. Also the foreign risk free rate for options on currencies
ttm	time to maturity, the life of the option, measured in years
P_mkt	market price
type	type of the option; "call" or "put"
tol	tolerance used for stopping criteria
max_it	maximum number of iterations

Details

A bisection algorithm is used to compute the implied volatility of a European option priced with the Black-Scholes-Merton model

Value

implied volatility estimate

Author(s)

Ross Bennett

GARPFRM documentation built on May 2, 2019, 5:45 p.m.