Method of determining implied volatility for American options

Details Method of determining implied volatility for American options Method of determining implied volatility for American options

2003-10-30

2011-10-04

Kramer, James (Department: 3693)

Data processing: financial, business practice, management, or co

Automated electrical financial or business practice or...

Finance

C705S035000

Reexamination Certificate

active

08032440

ABSTRACT:
A new computer-implemented method for determination of a financial index, namely, implied volatility for American options. The method involves the division of the period until option expiration into a series of sub-periods, and calculation of a node vega, the node vega being the exact derivative of the option price with respect to the volatility at the end of at least one of said subperiods.

REFERENCES:
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patent: 6879974 (2005-04-01), Ninomiya et al.
Widdicks, Martin et al., Convergence of Standard Lattice Methods for Option Pricing, 2002, The Journal of Futures Markets, vol. 22, No. 4, pp. 315-338.
Breen, Richard, The Accelerated Binomial Option Pricing Model, Jun. 1991, Journal of Financial and Quantitative Analysis, vol. 26, No. 2, pp. 153-164.
Rubinstein, Mark, Implied Binomial Trees, Jul. 1994. at http://haas.berkeley.edu/groups/finance.
John C. Hull; Options, Futures, and Other Derivatives, Sixth Edition. Prentice Hall, Copyright 1993-2006; pp. 397-398.
Mark Broadie and Jerome Detemple; American Option Valuation: New Bounds, Approximations, and a Comparison of Existing Methods; The Review of Financial Studies Winter 1996 vol. 9, No. 4, pp. 1211-1250.

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