AmericanOptionImpliedVolatility {RQuantLib}

Implied Volatility calculation for American Option

Description

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

Usage

## Default S3 method:
AmericanOptionImpliedVolatility(type, value,
		underlying, strike,dividendYield, riskFreeRate, maturity, volatility,
	        timeSteps=150, gridPoints=151)

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

timeSteps

Time steps for the Finite Differences method, default value is 150

gridPoints

Grid points for the Finite Differences method, default value is 151

Details

The Finite Differences method is used to value the American Option. 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 AmericanOptionImpliedVolatility function returns an numeric variable with volatility implied by the given market prices and given parameters.

Note

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

Author(s)

Dirk Eddelbuettel [e-mail] for the R interface; the QuantLib Group for QuantLib

References

https://www.quantlib.org/ for details on QuantLib.

See Also

EuropeanOption,AmericanOption,BinaryOption

Examples

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