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Option Pricing and Implicit Volatilities

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  • Jarrow, Robert A
  • Wiggins, James B

Abstract

This paper demonstrates that Black-Scholes implied volatilities can be used to value options in many situations where the assumptions of the Black-Scholes model are violated, including (1) alternative stock processes, (2) stochastic interest rates, and (3) market frictions. Given its computational simplicity, this procedure provides an attractive alternative to the more complex models with a direct estimation procedure. Copyright 1989 by Blackwell Publishers Ltd

Suggested Citation

  • Jarrow, Robert A & Wiggins, James B, 1989. "Option Pricing and Implicit Volatilities," Journal of Economic Surveys, Wiley Blackwell, vol. 3(1), pages 59-81.
    • Handle: RePEc:bla:jecsur:v:3:y:1989:i:1:p:59-81
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    Cited by:

    1. Ncube, Mthuli, 1996. "Modelling implied volatility with OLS and panel data models," Journal of Banking & Finance, Elsevier, vol. 20(1), pages 71-84, January.
    2. Neuhaus, Holger, 1995. "Der Informationsgehalt von Derivaten für die Geldpolitik: Implizite Volatilitäten und Wahrscheinlichkeiten," Discussion Paper Series 1: Economic Studies 1995,03, Deutsche Bundesbank.
    3. Neuhaus, Holger, 1995. "The information content of derivatives for monetary policy: Implied volatilities and probabilities," Discussion Paper Series 1: Economic Studies 1995,03e, Deutsche Bundesbank.
    4. Kaehler, Jürgen & Marnet, Volker, 1993. "Markov-switching models for exchange-rate dynamics and the pricing of foreign-currency options," ZEW Discussion Papers 93-03, ZEW - Leibniz Centre for European Economic Research.

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