[R-sig-finance] Computing implied volatility using fOptions

[davidr at rhotrading.com]

Seems excessive to me. Usually implied vol calcs converge in relatively few iterations with a simple NR solver. Given the accuracy and precision of the option prices, I wouldn't ask for such precision in the implieds.
Chances are you have some bad prices, which is not unusual even in very active markets. You should probably concentrate on the out-of-the-money
options, since they usually give more relevant information.

(BTW, I looked on Bloomberg for these options, and it says there are no options in WIG20, either on the cash index or on the futures. Are these OTC's? If so, then, somewhat different cautions may apply.)

David Reiner

-----Original Message-----
From: Wojciech Ślusarski [mailto:wojciech.slusarski at gmail.com] 
Sent: Thursday, February 17, 2005 1:15 PM
To: r-sig-finance at stat.math.ethz.ch
Subject: [R-sig-finance] Computing implied volatility using fOptions

Hello,
I have calculated the implied volatility, for the whole history of
option quotes on WIG20 stock index on Warsaw Stock Exchange. The thing
that is wondering me is that for some particular days I get volatility
nearly 0 (e.g. 3.12236893483001e-11). Is it happening because the
option was badly priced those thays (in comparison to Black-Scholes
price) or is it a problem of the algorithm. I am usin the
GBSVolatility() function with settings:

tol <- 10^(-10)
maxiter <- 100000

Are those values good for that, or should I use some other values.

Best regards,
Wojtek

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