Re: [Quantlib-users] How to compute IV from bid/ask prices of American options?

[Peng Yu <pen...@gm...>]

Thanks. How to determine dividend_rate in practice? For example, the
dividends for the following stock have been changing.

https://www.nasdaq.com/market-activity/stocks/sjm/dividend-history

I see implied vol is computed for each option contract below. What
spot_price, risk_free_rate should be used to reproduce the implied vol
shown on Yahoo Finance? Could you show an example for the following
contract? Thanks.

https://finance.yahoo.com/quote/SJM/options?p=SJM&date=1642723200

Contract Name	Last Trade Date	Strike	Last Price	Bid	Ask	Change	%
Change	Volume	Open Interest	Implied Volatility
SJM220121C00130000	2021-11-24 9:59AM
EST	130.00	5.97	5.00	5.30	0.00	-	1	551	23.60%

On 11/27/21, Jonathan Sweemer <sw...@gm...> wrote:
> Hi Peng,
>
> The usual way to back out implied vols from option prices is to use a
> solver. Since you are using python, scipy.optimize.brentq[1] would be a
> good choice.
>
> I've created a gist[2] on github that shows how to extend the example code
> from the link you provided to calculate implied vols as well.
>
> When I run it on my computer I get the following result, which matches the
> hardcoded number from the blog.
>
> $ python3 iv.py
> european npv: 6.749271812460607
> american npv: 6.837765216321175
> european iv:  0.20000000000000023
> american iv:  0.19999999999999965
>
> Note that you should be careful about how you deal with implied vols for
> American options, or any other style of option that is not European. This
> is because most people will assume you are talking about Black-Scholes
> implied vols, which requires the option to be European. Plus, in practice
> you will not want to price American options with flat rates, dividends, or
> vols, as it is a path-dependent instrument. Nevertheless for the stylized
> example from the blog the approach I've mentioned here should give you what
> you want.
>
> [1]
> https://docs.scipy.org/doc/scipy/reference/generated/scipy.optimize.brentq.html
> [2] https://gist.github.com/sweemer/7a0270655dc70d224d080b04fe11423e
>
> On Sat, Nov 27, 2021 at 2:05 PM Peng Yu <pen...@gm...> wrote:
>
>> Hi,
>>
>> I see the following example to compute prices for American Options.
>>
>>
>> http://gouthamanbalaraman.com/blog/american-option-pricing-quantlib-python.html
>>
>> But it is not clear how to do the reverse. How to compute IV from
>> bid/ask prices of American options?
>>
>> Could anybody show me a complete example of how to do so with quantlib?
>> Thanks.
>>
>> --
>> Regards,
>> Peng
>>
>>
>> _______________________________________________
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>


-- 
Regards,
Peng