Fast generation of implied volatility surface for exchange-traded stock options

Nan Zhang, Ka Lok Man

Research output: Chapter in Book or Report/Conference proceedingConference Proceedingpeer-review

2 Citations (Scopus)

Abstract

We present an algorithm and its software implementation that computes implied volatilities for exchangetraded stock options. The LR (Leisen-Reimer) binomial tree is used for the underlying option pricing, which is adjusted for dollar cash dividends. The Brent's method is used as the root-finding procedure. The option pricing procedure that is at the core of the root-finding is optimised to maximise the performance. Tests were made on call and put options traded on the stocks of Microsoft Corporation and Apple Inc.. In 0.046 and 0.226 seconds, respectively, the implemented generator finished computing the implied volatilities for 154 Microsoft and 823 Apple call options.

Original languageEnglish
Title of host publicationProceedings of the International MultiConference of Engineers and Computer Scientists 2013, IMECS 2013
PublisherNewswood Limited
Pages741-746
Number of pages6
ISBN (Print)9789881925268
Publication statusPublished - 2013
EventInternational MultiConference of Engineers and Computer Scientists 2013, IMECS 2013 - Kowloon, Hong Kong
Duration: 13 Mar 201315 Mar 2013

Publication series

NameLecture Notes in Engineering and Computer Science
Volume2203
ISSN (Print)2078-0958

Conference

ConferenceInternational MultiConference of Engineers and Computer Scientists 2013, IMECS 2013
Country/TerritoryHong Kong
CityKowloon
Period13/03/1315/03/13

Keywords

  • Brent's method
  • Implied volatility
  • LR binomial tree
  • Option pricing
  • Volatility surface generation

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