Advanced Search
MyIDEAS: Login to save this article or follow this journal

An adaptive successive over-relaxation method for computing the Black-Scholes implied volatility

Contents:

Author Info

  • Minqiang Li
  • Kyuseok Lee

Abstract

A new successive over-relaxation method to compute the Black-Scholes implied volatility is introduced. Properties of the new method are fully analysed, including global well-definedness, local convergence, as well as global convergence. Quadratic order of convergence is achieved by either a dynamic relaxation or transformation of sequence technique. The method is further enhanced by introducing a rational approximation on initial values. Numerical implementation shows that uniformly in a very large domain, the new method converges to the true implied volatility with very few iterations. Overall, the new method achieves a very good combination of efficiency, accuracy and robustness.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.tandfonline.com/doi/abs/10.1080/14697680902849361
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Quantitative Finance.

Volume (Year): 11 (2011)
Issue (Month): 8 ()
Pages: 1245-1269

as in new window
Handle: RePEc:taf:quantf:v:11:y:2011:i:8:p:1245-1269

Contact details of provider:
Web page: http://www.tandfonline.com/RQUF20

Order Information:
Web: http://www.tandfonline.com/pricing/journal/RQUF20

Related research

Keywords: Successive over-relaxation; Black-Scholes formula; Implied volatility; Rational approximation;

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Chambers, Donald R & Nawalkha, Sanjay K, 2001. "An Improved Approach to Computing Implied Volatility," The Financial Review, Eastern Finance Association, vol. 36(3), pages 89-99, August.
  2. Corrado, Charles J. & Miller, Thomas Jr., 1996. "A note on a simple, accurate formula to compute implied standard deviations," Journal of Banking & Finance, Elsevier, vol. 20(3), pages 595-603, April.
  3. Peter Carr & Liuren Wu, 2003. "The Finite Moment Log Stable Process and Option Pricing," Journal of Finance, American Finance Association, vol. 58(2), pages 753-778, 04.
  4. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
  5. Chance, Don M, 1996. "A Generalized Simple Formula to Compute the Implied Volatility," The Financial Review, Eastern Finance Association, vol. 31(4), pages 859-67, November.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:taf:quantf:v:11:y:2011:i:8:p:1245-1269. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.