Alternative Methods to Estimate Implied Variance

Cheng-Few Lee, John Lee, Jow-Ran Chang and Tzu Tai
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Cheng-Few Lee: Rutgers University, Department of Finance
John Lee: Center for PBBEF Research
Jow-Ran Chang: National Tsing Hua University, Department of Quantitative Finance
Tzu Tai: Mezocliq, LLC

Chapter Chapter 27 in Essentials of Excel, Excel VBA, SAS and Minitab for Statistical and Financial Analyses, 2016, pp 861-900 from Springer

Abstract: Abstract In this chapter we will introduce how to use Excel to estimate implied volatility. First, we use approximate linear function to derive the volatility implied by Black–Merton–Scholes model. Second, we use nonlinear method, which includes goal seek and bisection method, to calculate implied volatility. Third, we demonstrate how to get the volatility smile using IBM data. Fourth, we introduce constant elasticity volatility (CEV) model and use bisection method to calculate the implied volatility of CEV model. Finally, we calculate the 52 weeks historical volatility of a stock. We used the Excel function webservice to retrieve the 52 historical stock prices.

Keywords: Implied variance; Black–Scholes and Merton model; Corrado and Miller’s formula; Nonlinear model; Newton–Raphson method; Bisection method; Volatility smile; CEV model; Webservice excel function; Historical volatility (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-319-38867-0_27

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DOI: 10.1007/978-3-319-38867-0_27

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