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OPTION PRICING AND IMPLICIT VOLATILITIES 1
Author(s) -
Jarrow Robert A.,
Wiggins James B.
Publication year - 1989
Publication title -
journal of economic surveys
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.657
H-Index - 92
eISSN - 1467-6419
pISSN - 0950-0804
DOI - 10.1111/j.1467-6419.1989.tb00058.x
Subject(s) - black–scholes model , economics , valuation of options , econometrics , mathematical economics , simplicity , financial economics , mathematics , volatility (finance) , philosophy , epistemology
. This paper demonstrates that Black‐Scholes implied volatilities can be used to value options in many situations where the assumptions of the Black‐Scholes model are violated, including (i) alternative stock processes, (ii) stochastic interest rates, and (iii) market frictions. Given its computational simplicity, this procedure provides an attractive alternative to the more complex models with a direct estimation procedure.