A NEW ALGORITHM FOR COMPUTING IMPLIED VOLATILITY

Kawee Numpacharoen, Kornkanok Bunwong

Abstract


In this study, we simplified the Black-Scholes formula to a two-input
version. This simplified formula presents a one-to-one relationship with
one input given that the other input is fixed. With this simplified formula, we created an option-price data grid and showed that the implied volatility can be obtained by interpolation. This interpolation-based algorithm does not require iteration and has an adjustable accuracy, which is very useful in computing implied volatilities for a large number of options in a real-time environment.


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