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A Quadratic Method for the Calculation of Implied Volatility Using the Garman-Kohlhagen Model
M. A. J. Bharadia, N. Christofides and G. R. Salkin
Financial Analysts Journal
Vol. 52, No. 2 (Mar. - Apr., 1996), pp. 61-64
Published by: CFA Institute
Stable URL: http://www.jstor.org/stable/4479908
Page Count: 4
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Conventional techniques for evaluating the implied volatility from option prices involve iterative methods. The analytical algorithm presented in this article provides a simple, fairly accurate, and intuitive way of determining implied volatility. The discussion of this method is with reference to the Garman-Kohlhagen model for currency options, but the analysis is applicable to all options that can be priced using the Black-Scholes model. An improvement on a closed-form solution for implied volatility that is computationally more efficient is also presented.
Financial Analysts Journal © 1996 CFA Institute