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Alternative Methods to Estimate Implied Variance

In: Essentials of Excel, Excel VBA, SAS and Minitab for Statistical and Financial Analyses

Author

Listed:
  • Cheng-Few Lee

    (Rutgers University, Department of Finance)

  • John Lee

    (Center for PBBEF Research)

  • Jow-Ran Chang

    (National Tsing Hua University, Department of Quantitative Finance)

  • Tzu Tai

    (Mezocliq, LLC)

Abstract

In this chapter we will introduce how to use Excel to estimate implied volatility. First, we use approximate linear function to derive the volatility implied by Black–Merton–Scholes model. Second, we use nonlinear method, which includes goal seek and bisection method, to calculate implied volatility. Third, we demonstrate how to get the volatility smile using IBM data. Fourth, we introduce constant elasticity volatility (CEV) model and use bisection method to calculate the implied volatility of CEV model. Finally, we calculate the 52 weeks historical volatility of a stock. We used the Excel function webservice to retrieve the 52 historical stock prices.

Suggested Citation

  • Cheng-Few Lee & John Lee & Jow-Ran Chang & Tzu Tai, 2016. "Alternative Methods to Estimate Implied Variance," Springer Books, in: Essentials of Excel, Excel VBA, SAS and Minitab for Statistical and Financial Analyses, chapter 0, pages 861-900, Springer.
    • Handle: RePEc:spr:sprchp:978-3-319-38867-0_27
    DOI: 10.1007/978-3-319-38867-0_27
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