AmericanOptionImpliedVolatility: Implied Volatility calculation for American Option

In RQuantLib: R interface to the QuantLib library

Description

The AmericanOptionImpliedVolatility function solves for the (unobservable) implied volatility, given an option price as well as the other required parameters to value an option.

Usage

## Default S3 method:
AmericanOptionImpliedVolatility(type, value,
		underlying, strike,dividendYield, riskFreeRate, maturity, volatility,
	        timeSteps=150, gridPoints=151)

Arguments

type	A string with one of the values call or put
value	Value of the option (used only for ImpliedVolatility calculation)
underlying	Current price of the underlying stock
strike	Strike price of the option
dividendYield	Continuous dividend yield (as a fraction) of the stock
riskFreeRate	Risk-free rate
maturity	Time to maturity (in fractional years)
volatility	Initial guess for the volatility of the underlying stock
timeSteps	Time steps for the Finite Differences method, default value is 150
gridPoints	Grid points for the Finite Differences method, default value is 151

Details

The Finite Differences method is used to value the American Option. Implied volatilities are then calculated numerically.

Please see any decent Finance textbook for background reading, and the QuantLib documentation for details on the QuantLib implementation.

Value

The AmericanOptionImpliedVolatility function returns an object of class ImpliedVolatility. It contains a list with the following elements:

impliedVol	The volatility implied by the given market prices
parameters	List with the option parameters used

Note

The interface might change in future release as QuantLib stabilises its own API.

Author(s)

Dirk Eddelbuettel [e-mail] for the R interface; the QuantLib Group for QuantLib

References

http://quantlib.org for details on QuantLib.

See Also

EuropeanOption,AmericanOption,BinaryOption

Examples

AmericanOptionImpliedVolatility(type="call", value=11.10, underlying=100,
	strike=100, dividendYield=0.01, riskFreeRate=0.03,
	maturity=0.5, volatility=0.4)

Example output

sh: 1: cannot create /dev/null: Permission denied
[1] 0.3805953
attr(,"class")
[1] "AmericanOptionImpliedVolatility" "ImpliedVolatility"              

RQuantLib documentation built on May 2, 2019, 4:48 p.m.