XploRe Help : ImplVolaFX

Keywords - Function groups - @ A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Library:	finance
See also:	GarmanKohlhagen ImplVola

Quantlet:		ImplVolaFX
Description:		determines the implied volatilities assuming the Garman-Kohlhagen model for a vector of European style currency options. Uses the bisection method.

Reference(s):

[1] R. Weron, U. Wystup (2005) Heston's model and the smile, in "Statistical Tools for Finance and Insurance", eds. P. Cizek, W. Härdle, R. Weron, Springer.

Usage:	`vol = ImplVolaFX(X, S, K, rd, rf, tau, cp{, a0{, b0{, xtol{, maxiter}}}})`
Input:
	`X`	scalar, option price
	`S`	scalar, spot FX rate
	`K`	scalar, exercise price
	`rd`	scalar, domestic riskless interest rate (annualized)
	`rf`	scalar, foreign riskless interest rate (annualized)
	`tau`	scalar, time to expiration (in years)
	`cp`	scalar, option type cp=1 for call option cp=-1 for put option
	`a0`	optional scalar, distinct initial points bracketing a root, default a0 = 0.001
	`b0`	optional scalar, distinct initial points bracketing a root, default b0 = 1
	`xtol`	optional scalar, tolerance - absolute precision of the minimum, default xtol = 1e-8
	`maxiter`	optional scalar, maximal number of iterations, default maxiter = 100
Output:
	`vol`	scalar, implied volatility

Example:

library("finance") S=1 K=1 vol=0.1 rd=0.05 rf=0.03 tau=.25 cp=1 task=0 C=GarmanKohlhagen(S, K, vol, rd, rf, tau, cp, task) ImplVolaFX(C, S, K, rd, rf, tau, cp);, a0, b0, xtol, maxiter)

Result:

Contents of vol
[1,]      0.1

Author: R. Weron, 20040630 license MD*Tech