An Improved Approach to Computing Implied Volatility
Posted: 8 Nov 2002
Abstract
A well-known problem in finance is the absence of a closed form solution for volatility in common option pricing models. Several approaches have been developed to provide closed form approximations to volatility. This paper examines Chance's (1993, 1996) model, Corrado and Miller's (1996) model and Bharadia, Christofides and Salkin's (1996) model for approximating implied volatility. We develop a simplified extension of Chance's model that has greater accuracy than previous models. Our tests indicate dramatically improved results.
Suggested Citation: Suggested Citation
Chambers, Donald R. and Nawalkha, Sanjay K., An Improved Approach to Computing Implied Volatility. Available at SSRN: https://ssrn.com/abstract=311268
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