Extracting Implied Volatility: Newton-Raphson, Secant and Bisection Approaches

Εxtracting implied volatility from options premium is something that traders, market makers and analysts have to do. Implied volatility arguably the most important number to compute and monitor in the options market so adopting a good, reliable, robust model is absolutely necessary. A wrong implied volatility number would lead to mispricing, inaccurate trades and a wrong risk management strategy, which is why the adoption of a robust method to imply the volatility from options prices is such an important topic for several market participants. The current research will explore, compare and rank the results from the following methods: Newton-Raphson, Secant, Bisection and Analytical. This research was published on the Medium platform a few years ago but it is still valid today. Please click here to read the rest of the research.

 

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