Create an implied volatility calculator using Black's formula
- A simplified discount factor may be used that is comprised of only one interest rate r-namely,df(0,T)=
where T is the maturity of the option.
- If using Excel,N (d) is the function NORMSDIST().
- The forward rate for stocks can be approximated by
d = continuously compounded dividends
- Remember to have two models: one with σ s as an input, and one with the option market price as an input.
- For the Black formula calculator, use the following data:
- For the implied volatility calculator, use the following data:
- It is important to differentiate the various components of your model as outlined in Figure 1-39. Inputs and outputs will change depending on whether one is calculating a price or a volatility.
