An adaptive successive over-relaxation method for computing the Black-Scholes implied volatility
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.
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Volume (Year): 11 (2011)
Issue (Month): 8 ()
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References listed on IDEAS
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- Peter Carr & Liuren Wu, 2002.
"The Finite Moment Log Stable Process and Option Pricing,"
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