Here is an answer to the original question. It is an algorithm to compute IV, using the Method of Bisections. Developed by Bernt Odegaard. #include <cmath> #include "fin_recipes.h" double option price implied volatility call_black_scholes_bisections(const double& S, const double& K, const double& r, const double& time, const double& option price){ if (option price<0.99*(S-K*exp(-time*r))) { // check for arbitrage violations. return 0.0; // Option price is too low if this happens }; // simple binomial search for the implied volatility. // relies on the value of the option increasing in volatility const double ACCURACY = 1.0e-5; // make this smaller for higher accuracy const int MAX_ITERATIONS = 100; const double HIGH_VALUE = 1e10; const double ERROR = -1e40; // want to bracket sigma first. find a maximum sigma by finding a sigma // with a estimated price higher than the actual price. double sigma low=1e-5; double sigma high=0.3; double price = option_price_call_ black_ scholes(S,K,r,sigma high,time); while (price < option price) { sigma high = 2.0 * sigma high; // keep doubling. price = option price call black scholes(S,K,r,sigma high,time); if (sigma high>HIGH_VALUE) return ERROR; // panic, something wrong. }; for (int i=0;i<MAX_ITERATIONS;i++){ double sigma = (sigma low+sigma high)*0.5; price = option_price_call_black_scholes(S,K,r,sigma,time); double test = (price-option price); if (fabs(test)<ACCURACY) { return sigma; }; if (test < 0.0) { sigma low = sigma; } else { sigma high = sigma; } }; return ERROR; }; PS: The last for loop will not display properly for some reason. Google Bernt Odegaard to get the original recipe.
This answer is good...But only for student on the examination in economy...Not for The practising trader...Sorry
ooo...I am at last starting to understand you...And about this method(Garch) i want to hear...if i correctly understood you i must first find the volatility by this method and then i find an value i put it to model, is it correct?
MTE knows what he is talking about, as far as I can tell from his other posts he is a practicing trader in options. I have been previously a market maker in options and have done arbitrage in options for my own account for several years. This is the way you should do it.
may be you right.... I start explain my Thoughts in another word's.I trying to do this in simple word's.Don't kick me if I will make an error... We use two variant of volatility..IV and HI..To get a theori price of option we must to knew a IV( in another case we can't to calculate the value)...For me-putting a HI in model is a blunder....It mean we should to calculate the parameter(volatility) to put it in formula by another method.... Is am i correct???? I'm so sorry for my english...But you must trust me...I try as i can...Thank for all for helping me in this quantion...
this is just part of the answer, the basic thing is what the other guy is saying. considering your charts, I don't read russian and don't know what they are showing: could be anything. If it is implied vol: that's possible, it can change rather quickly in turbulant market, like today. Please buy yourself some books, to put it rather nicely, you don't know much about this. A thread is not a good way to start to learn from scratch, you got to read some books.