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

Kahra Hannu kahra at mpsgr.it
Mon Feb 21 10:27:40 CET 2005


in the early 90s I wrote a working paper, where I studied the behavior of the implicit volatilities of the Finnish FOX index options (as a function of time to expiry). In some cases I got similar results. In those cases time to expiry was commonly less than a week. I reasoned that the prices implied negative volatilities. The market was quite young, inefficient and not very liquid.


Hannu Kahra 
Progetti Speciali 
Monte Paschi Asset Management SGR S.p.A. 
Via San Vittore, 37
IT-20123 Milano, Italia 

Tel.: +39 02 43828 754 
Mobile: +39 333 876 1558 
Fax: +39 02 43828 247 
E-mail: kahra at mpsgr.it 
Web: www.mpsam.it 

-----Original Message-----
From: r-sig-finance-bounces at stat.math.ethz.ch
[mailto:r-sig-finance-bounces at stat.math.ethz.ch]On Behalf Of Wojciech
Sent: Thursday, February 17, 2005 8:15 PM
To: r-sig-finance at stat.math.ethz.ch
Subject: [R-sig-finance] Computing implied volatility using fOptions

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,

R-sig-finance at stat.math.ethz.ch mailing list

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