Title: A refined approach to estimating the implied volatility
Authors: Guan Jun Wang, Mazhar M. Islam, Christopher Ngassam
Addresses: Department of Accounting and Finance, School of Business and Industry, Florida A&M University, Sybil C. Mobley Business Building, 500 Gamble Street, Tallahassee, FL 32307-5200, USA. ' Department of Accounting and Finance, School of Business and Industry, Florida A&M University, Sybil C. Mobley Business Building, 500 Gamble Street, Tallahassee, FL 32307-5200, USA. ' Department of Accounting and Finance, School of Business and Industry, Florida A&M University, Sybil C. Mobley Business Building, 500 Gamble Street, Tallahassee, FL 32307-5200, USA
Abstract: In this paper we used a refined approach to estimating the implied volatility from options price in the classic framework developed by Black and Scholes (1973) and Merton (1973). Our study extend the formula previously developed by Corrado and Miller (1996) which works well for the Index options with the present value of strike price being close to the index price. Our refined approach provides more accurate implied volatility estimation over a wider range of moneyness.
Keywords: options; Black-Scholes model; implied volatility; Taylor series; strike price; index price.
DOI: 10.1504/IJBFMI.2009.028451
International Journal of Business Forecasting and Marketing Intelligence, 2009 Vol.1 No.2, pp.122 - 133
Published online: 17 Sep 2009 *
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