Tweaking Implied Volatility

Corrado, Charles J.; Miller, Jr., Thomas W.

doi:10.2139/ssrn.584982

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Tweaking Implied Volatility

9 Pages Posted: 2 Sep 2004

See all articles by Charles J. Corrado

Charles J. Corrado

Deakin University - School of Accounting, Economics & Finance

Thomas W. Miller, Jr.

Mississippi State University; Consumers' Research

Date Written: September 2004

Abstract

Hallerbach (2004) derives an approximation formula to compute a Black-Scholes implied volatility. This formula is equivalent to equation (7) in Corrado and Miller (1996a), with the substitution of a geometric average of stock and strike prices in place of an arithmetic average. Ceteris paribus the same numerical values are obtained. Although useful in a pedagogic setting, even with tweaking neither formula has the robustness typically required for commercial or research applications.

Keywords: Options, implied volatility, implied standard deviation

JEL Classification: C13, C63, G13

Suggested Citation: Suggested Citation

Corrado, Charles J. and Miller, Jr., Thomas W., Tweaking Implied Volatility (September 2004). Available at SSRN: https://ssrn.com/abstract=584982 or http://dx.doi.org/10.2139/ssrn.584982