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Programmes de volatilité stochastique et de volatilité implicite : applications Visual Basic (Excel) et Matlab

Author

Listed:
  • Francois-Éric Racicot

    () (Département des sciences administratives, Université du Québec (Outaouais) et LRSP)

  • Raymond Théoret

    () (Département de stratégie des affaires, Université du Québec (Montréal))

Abstract

Markets makers quote many option categories in terms of implicit volatility. In doing so, they can reactivate the Black and Scholes model which assumes that the volatility of an option underlying is constant while it is highly variable. First of all, this article, whose purpose is very empirical, presents a simulation of stochastic volatility programmed in Visual Basic (Excel) whose aim is to compute the price of an European option written on a zero coupon bond. We compare this computed price with this one resulting from Black analytical solution and we also show how to compute an interest rate forecast with the help of the simulation model. Then we write many Visual Basic and Matlab programs for the purpose of computing the implicit volatility surface, a three-dimensional surface which can be plotted by using graphical capacities of Excel and Matlab. It remains that the concept of implicit volatility is very criticised because it is computed with the exercise price of an option and not with the price of the underlying, as it should be. Therefore, there are biases in the estimation of the «greeks» computed with implicit volatility.

Suggested Citation

  • Francois-Éric Racicot & Raymond Théoret, 2007. "Programmes de volatilité stochastique et de volatilité implicite : applications Visual Basic (Excel) et Matlab," RePAd Working Paper Series UQO-DSA-wp012007, Département des sciences administratives, UQO.
  • Handle: RePEc:pqs:wpaper:012007
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    File URL: http://www.repad.org/ca/qc/uq/uqo/dsa/ArticlevolatiliteimpliciteFERRTJanvier2007.pdf
    File Function: First version, 2007
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    More about this item

    Keywords

    Financial engineering; Monte Carlo simulation; stochastic volatility; implicit volatility.;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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