April 2015
Intermediate to advanced
340 pages
7h 21m
English
Content preview from Mastering Python for FinanceBecome an O’Reilly member and get unlimited access to this title plus top books and audiobooks from O’Reilly and nearly 200 top publishers, thousands of courses curated by job role, 150+ live events each month,
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Putting it all together – implied volatility modeling
In the options pricing methods we learned so far, a number of parameters are assumed to be constant: interest rates, strike prices, dividends, and volatility. Here, the parameter of interest is volatility. In quantitative research, the volatility ratio is used to forecast price trends.
To derive implied volatilities, we need to refer to Chapter 3, Nonlinearity in Finance where we discussed root-finding methods of nonlinear functions. We will use the bisection method of numerical procedures in our next example to create an implied volatility curve.
Implied volatilities of AAPL American put option
Let's consider the option data of the stock Apple (AAPL) gathered at the end of day on October 3, 2014, ...
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