Numerical Approximation of the Implied Volatility Under Arithmetic Brownian Motion

We provide an accurate approximation method for inverting an option price to the implied volatility under arithmetic Brownian motion, which is widely quoted in Fixed Income markets. The maximum error in the volatility is in the order of 10-10 of the given option price and much smaller for the near-the-money options. Thus our approximation can be used as an exact solution without further refinements of iterative methods.

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Year of publication:	2009
Authors:	Choi, Jaehyuk ; Kim, Kwangmoon ; Kwak, Minsuk
Published in:	Applied Mathematical Finance. - Taylor & Francis Journals, ISSN 1350-486X. - Vol. 16.2009, 3, p. 261-268
Publisher:	Taylor & Francis Journals
Subject:	Normal implied volatility \| basis point volatility \| arithmetic Brownian motion \| rational approximation \| closed form approximation

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Extent:	text/html
Type of publication:	Article
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10004966849