Tweaking Implied Volatility
9 Pages Posted: 2 Sep 2004
Date Written: September 2004
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