Alternative Methods to Estimate Implied Variance: Review and Comparison

Cheng-Few Lee (), Hong-Yi Chen () and John Lee ()
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Cheng-Few Lee: Rutgers University, Department of Finance and Economics, Rutgers Business School
Hong-Yi Chen: National Chengchi University, Department of Finance
John Lee: Center for PBBEF Research

Chapter Chapter 18 in Financial Econometrics, Mathematics and Statistics, 2019, pp 473-490 from Springer

Abstract: Abstract The main purpose of this chapter is to demonstrate how to estimate implied varianceEstimate implied variance for the Black–Scholes option pricing modelBlack-Scholes option pricing model (OPM). We classify various approaches into two different estimation routines: numerical search methods and closed-form derivation approaches. Both the MATLAB approachMATLAB approach and approximation method are used to empirically estimate implied varianceEstimate implied variance for American individual stock options and Chinese ETF 50 options.

Keywords: Estimate implied variance; MATLAB approach; Approximation approach (search for similar items in EconPapers)
Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-1-4939-9429-8_18

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DOI: 10.1007/978-1-4939-9429-8_18

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