An Improved Approach to Computing Implied Volatility
AbstractA well-known problem in finance is the absence of a closed form solution for volatility in common option pricing models. Several approaches have been developed to provide closed form approximations to volatility. This paper examines Chance's (1993, 1996) model, Corrado and Miller's (1996) model and Bharadia, Christofides and Salkin's (1996) model for approximating implied volatility. We develop a simplified extension of Chance's model that has greater accuracy than previous models. Our tests indicate dramatically improved results. Copyright 2001 by MIT Press.
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Bibliographic InfoArticle provided by Eastern Finance Association in its journal The Financial Review.
Volume (Year): 36 (2001)
Issue (Month): 3 (August)
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- Steven Li, 2003. "The estimation of implied volatility from the Black-Scholes model: some new formulas and their applications," School of Economics and Finance Discussion Papers and Working Papers Series 141, School of Economics and Finance, Queensland University of Technology.
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