A Formula to Compute Implied Volatility, with Error Estimate

DOI IR HANDLE 3 References
  • LIANG Song
    Institute of Mathematics, University of Tsukuba
  • TAHARA Yoshihiro
    Credit Risk Management Division, Mitsubishi UFJ Trust and Banking Corporation

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We derive a simple formula to compute implied volatility approximately, and give an estimate of its relative error, in the framework developed by Black-Scholes. In particular, our error estimate ensures that the relative error of our formula is converging to 0 under certain condition.

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