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Accuracy of Implied Volatility Approximations Using "Nearest-to-the-Money" Option Premiums


  • Isengildina-Massa, Olga
  • Curtis, Charles E., Jr.
  • Bridges, William
  • Nian, Minhuan


Implied volatility is a useful bit of information for futures and options hedgers and speculators. However, extraction of implied volatility from Black-Scholes (BS) option pricing model requires a numeric search. Since 1988, there have been numerous simplifying modifications to the BS formula proposed and presented in the applied economics and finance literature to allow approximation of implied volatility directly. This study identifies and tests these simplification methods for accuracy for call only and put-call average elicitation of an implied volatility estimate. Results show that accuracy varies by method and whether call only or put-call average approaches are applied.

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  • Isengildina-Massa, Olga & Curtis, Charles E., Jr. & Bridges, William & Nian, Minhuan, 2007. "Accuracy of Implied Volatility Approximations Using "Nearest-to-the-Money" Option Premiums," 2007 Annual Meeting, February 4-7, 2007, Mobile, Alabama 34927, Southern Agricultural Economics Association.
  • Handle: RePEc:ags:saeasm:34927

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    1. Miller, J. Corey & Barnett, Barry J. & Coble, Keith H., 2003. "Analyzing Producer Preferences for Counter-Cyclical Government Payments," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 35(03), December.
    2. Bruce A. Babcock & Chad E. Hart, 2005. "How Much "Safety" Is Available under the U.S. Proposal to the WTO?," Center for Agricultural and Rural Development (CARD) Publications 05-bp48, Center for Agricultural and Rural Development (CARD) at Iowa State University.
    3. Coble, Keith H., 2006. "The Devil's in the Details: Why a Revenue-based Farm Program is No Panacea," Staff Reports 15806, Mississippi State University, Department of Agricultural Economics.
    4. repec:ags:joaaec:v:35:y:2003:i:3:p:671-684 is not listed on IDEAS
    5. Sergio H. Lence & Dermot J. Hayes, 2002. "U.S. Farm Policy and the Volatility of Commodity Prices and Farm Revenues," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(2), pages 335-351.
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