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A Generalized Simple Formula to Compute the Implied Volatility

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  • Chance, Don M

Abstract

This paper provides a direct method of obtaining an accurate estimate of the implied volatility of a call option. It adds a quadratic adjustment term to an already-known formula for at-the-money calls, previously developed by Brenner and Subrahmanyam. The adjusted formula is quite accurate for options no more than 20 percent in- or out-of-the-money and is simple to program and compute. Copyright 1996 by MIT Press.

Suggested Citation

  • Chance, Don M, 1996. "A Generalized Simple Formula to Compute the Implied Volatility," The Financial Review, Eastern Finance Association, vol. 31(4), pages 859-867, November.
  • Handle: RePEc:bla:finrev:v:31:y:1996:i:4:p:859-67
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    Cited by:

    1. repec:kap:revdev:v:20:y:2017:i:1:d:10.1007_s11147-016-9124-0 is not listed on IDEAS
    2. Minqiang Li & Kyuseok Lee, 2011. "An adaptive successive over-relaxation method for computing the Black-Scholes implied volatility," Quantitative Finance, Taylor & Francis Journals, pages 1245-1269.
    3. Sukhomlin, Nikolay & Santana Jiménez, Lisette Josefina, 2010. "Problema de calibración de mercado y estructura implícita del modelo de bonos de Black-Cox = Market Calibration Problem and the Implied Structure of the Black-Cox Bond Model," Revista de Métodos Cuantitativos para la Economía y la Empresa = Journal of Quantitative Methods for Economics and Business Administration, Universidad Pablo de Olavide, Department of Quantitative Methods for Economics and Business Administration, vol. 10(1), pages 73-98, December.
    4. Kathrin Glau & Paul Herold & Dilip B. Madan & Christian Potz, 2017. "The Chebyshev method for the implied volatility," Papers 1710.01797, arXiv.org.
    5. 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.
    6. Li, Minqiang, 2008. "Approximate inversion of the Black-Scholes formula using rational functions," European Journal of Operational Research, Elsevier, pages 743-759.

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