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Faster Implied Volatilities via the Implicit Function Theorem

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  • Michael A. Kelly

Abstract

We present a faster, more accurate technique for estimating implied volatility using the standard partial derivatives of the Black-Scholes option-pricing formula. Beside Newton-Raphson and slower approximation methods, this technique is the first to provide an error tolerance, which is essential for practical application. All existing noniterative approximation methods do not provide error tolerances and have the potential for large errors. Copyright 2006, The Eastern Finance Association.

Suggested Citation

  • Michael A. Kelly, 2006. "Faster Implied Volatilities via the Implicit Function Theorem," The Financial Review, Eastern Finance Association, vol. 41(4), pages 589-597, November.
  • Handle: RePEc:bla:finrev:v:41:y:2006:i:4:p:589-597
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    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1540-6288.2006.00158.x
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    1. repec:kap:revdev:v:20:y:2017:i:1:d:10.1007_s11147-016-9124-0 is not listed on IDEAS
    2. 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.
    3. repec:wsi:ijtafx:v:20:y:2017:i:07:n:s0219024917500480 is not listed on IDEAS

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