EuropeanOptionImpliedVolatility {RQuantLib}R Documentation

Implied Volatility calculation for European Option

Description

The EuropeanOptionImpliedVolatility function solves for the (unobservable) implied volatility, given an option price as well as the other required parameters to value an option.

The code is currently (QuantLib 0.3.7) broken and NA is returned. Debugging help would be welcome.

Usage

EuropeanOptionImpliedVolatility.default(type, value, underlying, strike, dividendYield, riskFreeRate, maturity, volatility)

## S3 method for class 'ImpliedVolatility':
print
## S3 method for class 'ImpliedVolatility':
summary

Arguments

type A string with one of the values call or put
value Value of the option (used only for ImpliedVolatility calculation)
underlying Current price of the underlying stock
strike Strike price of the option
dividendYield Continuous dividend yield (as a fraction) of the stock
riskFreeRate Risk-free rate
maturity Time to maturity (in fractional years)
volatility Initial guess for the volatility of the underlying stock

Details

The well-known closed-form solution derived by Black, Scholes and Merton is used for valuation. Implied volatilities are then calculated numerically.

Please see any decent Finance textbook for background reading, and the QuantLib documentation for details on the QuantLib implementation.

Value

The EuropeanOptionImpliedVolatility function returns an object of class ImpliedVolatility. It contains a list with the following elements:

impliedVol The volatility implied by the given market prices
parameters List with the option parameters used

Note

The interface might change in future release as QuantLib stabilises its own API.

Author(s)

Dirk Eddelbuettel edd@debian.org for the R interface; the QuantLib Group for QuantLib

References

http://quantlib.org for details on QuantLib.

See Also

EuropeanOption,AmericanOption,BinaryOption

Examples

EuropeanOptionImpliedVolatility(type="call", value=11.10, underlying=100,
        strike=100, dividendYield=0.01, riskFreeRate=0.03,
        maturity=0.5, volatility=0.4)

[Package RQuantLib version 0.1.12 Index]