Computation of the implied discount rate and volatility for an overdefined system using stochastic optimization
This paper studies estimation of the implied volatility and the impact of the choice of the corresponding risk-free rate proxy. We suggest to analyse the implied volatility and the risk-free rate proxy inferred in conjunction with the observed option prices. We formulate and solve an overdefined sys...
| Main Authors: | , |
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| Format: | Journal Article |
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Oxford University Press
2015
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| Online Access: | http://hdl.handle.net/20.500.11937/45001 |
| _version_ | 1848757160475885568 |
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| author | Hin, L. Dokuchaev, Nikolai |
| author_facet | Hin, L. Dokuchaev, Nikolai |
| author_sort | Hin, L. |
| building | Curtin Institutional Repository |
| collection | Online Access |
| description | This paper studies estimation of the implied volatility and the impact of the choice of the corresponding risk-free rate proxy. We suggest to analyse the implied volatility and the risk-free rate proxy inferred in conjunction with the observed option prices. We formulate and solve an overdefined system of non-linear equations for the Black–Scholes model using options data. More precisely, we seek an optimal approximate solution via differential evolution, a stochastic optimization technique. Some experiments with historical prices reveal a higher inferred risk-free rate than commonly used proxies. This leads to narrower volatility spread, or smaller difference between implied and realized volatilities. |
| first_indexed | 2025-11-14T09:23:41Z |
| format | Journal Article |
| id | curtin-20.500.11937-45001 |
| institution | Curtin University Malaysia |
| institution_category | Local University |
| last_indexed | 2025-11-14T09:23:41Z |
| publishDate | 2015 |
| publisher | Oxford University Press |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | curtin-20.500.11937-450012019-02-19T05:35:13Z Computation of the implied discount rate and volatility for an overdefined system using stochastic optimization Hin, L. Dokuchaev, Nikolai risk-free rate optimization Implied volatility This paper studies estimation of the implied volatility and the impact of the choice of the corresponding risk-free rate proxy. We suggest to analyse the implied volatility and the risk-free rate proxy inferred in conjunction with the observed option prices. We formulate and solve an overdefined system of non-linear equations for the Black–Scholes model using options data. More precisely, we seek an optimal approximate solution via differential evolution, a stochastic optimization technique. Some experiments with historical prices reveal a higher inferred risk-free rate than commonly used proxies. This leads to narrower volatility spread, or smaller difference between implied and realized volatilities. 2015 Journal Article http://hdl.handle.net/20.500.11937/45001 10.1093/imaman/dpv007 Oxford University Press fulltext |
| spellingShingle | risk-free rate optimization Implied volatility Hin, L. Dokuchaev, Nikolai Computation of the implied discount rate and volatility for an overdefined system using stochastic optimization |
| title | Computation of the implied discount rate and volatility for an overdefined system using stochastic optimization |
| title_full | Computation of the implied discount rate and volatility for an overdefined system using stochastic optimization |
| title_fullStr | Computation of the implied discount rate and volatility for an overdefined system using stochastic optimization |
| title_full_unstemmed | Computation of the implied discount rate and volatility for an overdefined system using stochastic optimization |
| title_short | Computation of the implied discount rate and volatility for an overdefined system using stochastic optimization |
| title_sort | computation of the implied discount rate and volatility for an overdefined system using stochastic optimization |
| topic | risk-free rate optimization Implied volatility |
| url | http://hdl.handle.net/20.500.11937/45001 |