webcab.lib.finance.options
Class ImpliedVolatility

java.lang.Object
  |
  +--webcab.lib.finance.options.ImpliedVolatility

All Implemented Interfaces:

Serializable

public class ImpliedVolatility

extends Object

implements Serializable

This class calculates the implied volatility for a given European (call or put) option.

Remark: In order to solve the formulae resulting from the Back-Scholes analysis we have applied a numerical procedures known as Ridders method with a precision of 10E-6.

See Also:

Serialized Form

Constructor Summary

ImpliedVolatility()
Creates a new instance.

Method Summary

double	callOnCurrencyVolatility(double foreignRiskFree, double exchangeRate, double strike, double riskFreeRate, Date evaluationDate, Date maturityDate, double callValue, BusinessCalendar businessCalendar) Calculates the implied volatility of a currency from the Black-Scholes formulae, knowing the value of a call option on that currency.
double	callOnCurrencyVolatility(double foreignRiskFree, double exchangeRate, double strike, double riskFreeRate, double timeToMaturity, double callValue) Calculates the implied volatility of a currency from the Black-Scholes formulae, knowing the value of a call option on that currency.
double	callOnFuturesVolatility(double futuresPrice, double strike, double riskFreeRate, Date evaluationDate, Date maturityDate, double callValue, BusinessCalendar businessCalendar) Calculates the implied volatility of a futures contract from the Black-Scholes formulae, knowing the value of a call option on that contract.
double	callOnFuturesVolatility(double futuresPrice, double strike, double riskFreeRate, double timeToMaturity, double callValue) Calculates the implied volatility of a futures contract from the Black-Scholes formulae, knowing the value of a call option on that contract.
double	callOnIndexVolatility(double yield, double indexValue, double strike, double riskFreeRate, Date evaluationDate, Date maturityDate, double callValue, BusinessCalendar businessCalendar) Calculates the implied volatility of an index from the Black-Scholes formulae, knowing the value of a call option on that index.
double	callOnIndexVolatility(double yield, double indexValue, double strike, double riskFreeRate, double timeToMaturity, double callValue) Calculates the implied volatility of an index from the Black-Scholes formulae, knowing the value of a call option on that index.
double	callVolatility(double assetPrice, double strike, double riskFreeRate, Date evaluationDate, Date maturityDate, double callValue, BusinessCalendar businessCalendar) Calculates the implied volatility of a non-dividend paying stock from the Black-Scholes formulae, knowing the value of a call option on that stock.
double	callVolatility(double assetPrice, double strike, double riskFreeRate, double timeToMaturity, double callValue) Calculates the implied volatility of a non-dividend paying stock from the Black-Scholes formulae, knowing the value of a call option on that stock.
double	callWithYieldVolatility(double yield, double assetPrice, double strike, double riskFreeRate, Date evaluationDate, Date maturityDate, double callValue, BusinessCalendar businessCalendar) Calculates the implied volatility of a stock which pays dividends during the option live from the Black-Scholes formulae, knowing the value of a call option on that stock.
double	callWithYieldVolatility(double yield, double assetPrice, double strike, double riskFreeRate, double timeToMaturity, double callValue) Calculates the implied volatility of a stock which pays dividends during the option live from the Black-Scholes formulae, knowing the value of a call option on that stock.
double	putOnCurrencyVolatility(double foreignRiskFree, double exchangeRate, double strike, double riskFreeRate, Date evaluationDate, Date maturityDate, double putValue, BusinessCalendar businessCalendar) Calculates the implied volatility of a currency from the Black-Scholes formulae, knowing the value of a put option on that currency.
double	putOnCurrencyVolatility(double foreignRiskFree, double exchangeRate, double strike, double riskFreeRate, double timeToMaturity, double putValue) Calculates the implied volatility of a currency from the Black-Scholes formulae, knowing the value of a put option on that currency.
double	putOnFuturesVolatility(double futuresPrice, double strike, double riskFreeRate, Date evaluationDate, Date maturityDate, double putValue, BusinessCalendar businessCalendar) Calculates the implied volatility of a futures contract from the Black-Scholes formulae, knowing the value of a put option on that contract.
double	putOnFuturesVolatility(double futuresPrice, double strike, double riskFreeRate, double timeToMaturity, double putValue) Calculates the implied volatility of a futures contract from the Black-Scholes formulae, knowing the value of a put option on that contract.
double	putOnIndexVolatility(double yield, double indexValue, double strike, double riskFreeRate, Date evaluationDate, Date maturityDate, double putValue, BusinessCalendar businessCalendar) Calculates the implied volatility of an index from the Black-Scholes formulae, knowing the value of a call option on that index.
double	putOnIndexVolatility(double yield, double indexValue, double strike, double riskFreeRate, double timeToMaturity, double putValue) Calculates the implied volatility of an index from the Black-Scholes formulae, knowing the value of a call option on that index.
double	putVolatility(double assetPrice, double strike, double riskFreeRate, Date evaluationDate, Date maturityDate, double putValue, BusinessCalendar businessCalendar) Calculates the implied volatility of a non-dividend paying stock from the Black-Scholes formulae, knowing the value of a put option on that stock.
double	putVolatility(double assetPrice, double strike, double riskFreeRate, double timeToMaturity, double putValue) Calculates the implied volatility of a non-dividend paying stock from the Black-Scholes formulae, knowing the value of a put option on that stock.
double	putWithYieldVolatility(double yield, double assetPrice, double strike, double riskFreeRate, Date evaluationDate, Date maturityDate, double putValue, BusinessCalendar businessCalendar) Calculates the implied volatility of a stock which pays dividends during the option life from the Black-Scholes formulae, knowing the value of a put option on that stock.
double	putWithYieldVolatility(double yield, double assetPrice, double strike, double riskFreeRate, double timeToMaturity, double putValue) Calculates the implied volatility of a stock which pays dividends during the option life from the Black-Scholes formulae, knowing the value of a put option on that stock.

Methods inherited from class java.lang.Object

clone, equals, finalize, getClass, hashCode, notify, notifyAll, toString, wait, wait, wait

Constructor Detail

ImpliedVolatility

public ImpliedVolatility()

Creates a new instance.

Method Detail

callVolatility

public double callVolatility(double assetPrice,
                             double strike,
                             double riskFreeRate,
                             Date evaluationDate,
                             Date maturityDate,
                             double callValue,
                             BusinessCalendar businessCalendar)
                      throws OptionsException,
                             ImpliedVolatilityDemoException

Calculates the implied volatility of a non-dividend paying stock from the Black-Scholes formulae, knowing the value of a call option on that stock.

Parameters:

assetPrice - the stock price at time zero

strike - the strike of the option

riskFreeRate - the continuously compounded risk free interest rate

callValue - the market value of the call option

evaluationDate - the date when the implied volatility of the option contract is evaluated

maturityDate - the date when the option contract matures

businessCalendar - The instance of a BusinessCalendar interface implementation. Specify null to select the London business calendar.

Throws:

OptionsException - thrown when the implied volatility cannot be deduced from the given values.

ImpliedVolatilityDemoException

callVolatility

public double callVolatility(double assetPrice,
                             double strike,
                             double riskFreeRate,
                             double timeToMaturity,
                             double callValue)
                      throws OptionsException,
                             ImpliedVolatilityDemoException

Calculates the implied volatility of a non-dividend paying stock from the Black-Scholes formulae, knowing the value of a call option on that stock.

Parameters:

assetPrice - the stock price at time zero

strike - the strike of the option

riskFreeRate - the continuously compounded risk free interest rate

timeToMaturity - the time (in years) until the option contract matures

callValue - the market value of the call option

Throws:

OptionsException - thrown when the implied volatility cannot be deduced from the given values.

ImpliedVolatilityDemoException

putVolatility

public double putVolatility(double assetPrice,
                            double strike,
                            double riskFreeRate,
                            Date evaluationDate,
                            Date maturityDate,
                            double putValue,
                            BusinessCalendar businessCalendar)
                     throws OptionsException,
                            ImpliedVolatilityDemoException

Calculates the implied volatility of a non-dividend paying stock from the Black-Scholes formulae, knowing the value of a put option on that stock.

Parameters:

assetPrice - the stock price at time zero

strike - the strike of the option

riskFreeRate - the continuously compounded risk free interest rate

putValue - the market value of the put option

evaluationDate - the date when the implied volatility of the option contract is evaluated

maturityDate - the date when the option contract matures

businessCalendar - The instance of a BusinessCalendar interface implementation. Specify null to select the London business calendar.

Throws:

OptionsException - thrown when the implied volatility cannot be deduced from the given values.

ImpliedVolatilityDemoException

putVolatility

public double putVolatility(double assetPrice,
                            double strike,
                            double riskFreeRate,
                            double timeToMaturity,
                            double putValue)
                     throws OptionsException,
                            ImpliedVolatilityDemoException

Calculates the implied volatility of a non-dividend paying stock from the Black-Scholes formulae, knowing the value of a put option on that stock.

Parameters:

assetPrice - the stock price at time zero

strike - the strike of the option

riskFreeRate - the continuously compounded risk free interest rate

timeToMaturity - the time (in years) until the option contract matures

putValue - the market value of the put option

Throws:

OptionsException - thrown when the implied volatility cannot be deduced from the given values.

ImpliedVolatilityDemoException

callWithYieldVolatility

public double callWithYieldVolatility(double yield,
                                      double assetPrice,
                                      double strike,
                                      double riskFreeRate,
                                      Date evaluationDate,
                                      Date maturityDate,
                                      double callValue,
                                      BusinessCalendar businessCalendar)
                               throws OptionsException,
                                      ImpliedVolatilityDemoException

Calculates the implied volatility of a stock which pays dividends during the option live from the Black-Scholes formulae, knowing the value of a call option on that stock.

Parameters:

yield - the continuous dividend yield paid by the underlying asset

assetPrice - the stock price at time zero

strike - the strike of the option

riskFreeRate - the continuously compounded risk free interest rate

callValue - the market value of the call option

evaluationDate - the date when the implied volatility of the option contract is evaluated

maturityDate - the date when the option contract matures

businessCalendar - The instance of a BusinessCalendar interface implementation. Specify null to select the London business calendar.

Throws:

OptionsException - thrown when the implied volatility cannot be deduced from the given values.

ImpliedVolatilityDemoException

callWithYieldVolatility

public double callWithYieldVolatility(double yield,
                                      double assetPrice,
                                      double strike,
                                      double riskFreeRate,
                                      double timeToMaturity,
                                      double callValue)
                               throws OptionsException,
                                      ImpliedVolatilityDemoException

Calculates the implied volatility of a stock which pays dividends during the option live from the Black-Scholes formulae, knowing the value of a call option on that stock.

Parameters:

yield - the continuous dividend yield paid by the underlying asset

assetPrice - the stock price at time zero

strike - the strike of the option

riskFreeRate - the continuously compounded risk free interest rate

timeToMaturity - the time (in years) until the option contract matures

callValue - the market value of the call option

Throws:

OptionsException - thrown when the implied volatility cannot be deduced from the given values.

ImpliedVolatilityDemoException

putWithYieldVolatility

public double putWithYieldVolatility(double yield,
                                     double assetPrice,
                                     double strike,
                                     double riskFreeRate,
                                     Date evaluationDate,
                                     Date maturityDate,
                                     double putValue,
                                     BusinessCalendar businessCalendar)
                              throws OptionsException,
                                     ImpliedVolatilityDemoException

Calculates the implied volatility of a stock which pays dividends during the option life from the Black-Scholes formulae, knowing the value of a put option on that stock.

Parameters:

yield - the continuous dividend yield paid by the underlying asset

assetPrice - the stock price at time zero

strike - the strike of the option

riskFreeRate - the continuously compounded risk free interest rate

putValue - the market value of the put option

evaluationDate - the date when the implied volatility of the option contract is evaluated

maturityDate - the date when the option contract matures

businessCalendar - The instance of a BusinessCalendar interface implementation. Specify null to select the London business calendar.

Throws:

OptionsException - thrown when the implied volatility cannot be deduced from the given values.

ImpliedVolatilityDemoException

putWithYieldVolatility

public double putWithYieldVolatility(double yield,
                                     double assetPrice,
                                     double strike,
                                     double riskFreeRate,
                                     double timeToMaturity,
                                     double putValue)
                              throws OptionsException,
                                     ImpliedVolatilityDemoException

Calculates the implied volatility of a stock which pays dividends during the option life from the Black-Scholes formulae, knowing the value of a put option on that stock.

Parameters:

yield - the continuous dividend yield paid by the underlying asset

assetPrice - the stock price at time zero

strike - the strike of the option

riskFreeRate - the continuously compounded risk free interest rate

timeToMaturity - the time (in years) until the option contract matures

putValue - the market value of the put option

Throws:

OptionsException - thrown when the implied volatility cannot be deduced from the given values.

ImpliedVolatilityDemoException

callOnIndexVolatility

public double callOnIndexVolatility(double yield,
                                    double indexValue,
                                    double strike,
                                    double riskFreeRate,
                                    Date evaluationDate,
                                    Date maturityDate,
                                    double callValue,
                                    BusinessCalendar businessCalendar)
                             throws OptionsException,
                                    ImpliedVolatilityDemoException

Calculates the implied volatility of an index from the Black-Scholes formulae, knowing the value of a call option on that index.

Parameters:

yield - the continuous yield of the index

indexValue - the value of the index at time zero

strike - the strike of the option

riskFreeRate - the continuously compounded risk free interest rate

callValue - the market value of the call option

evaluationDate - the date when the implied volatility of the option contract is evaluated

maturityDate - the date when the option contract matures

businessCalendar - The instance of a BusinessCalendar interface implementation. Specify null to select the London business calendar.

Throws:

OptionsException - thrown when the implied volatility cannot be deduced from the given values.

ImpliedVolatilityDemoException

callOnIndexVolatility

public double callOnIndexVolatility(double yield,
                                    double indexValue,
                                    double strike,
                                    double riskFreeRate,
                                    double timeToMaturity,
                                    double callValue)
                             throws OptionsException,
                                    ImpliedVolatilityDemoException

Calculates the implied volatility of an index from the Black-Scholes formulae, knowing the value of a call option on that index.

Parameters:

yield - the continuous yield of the index

indexValue - the value of the index at time zero

strike - the strike of the option

riskFreeRate - the continuously compounded risk free interest rate

timeToMaturity - the time (in years) until the option contract matures

callValue - the market value of the call option

Throws:

OptionsException - thrown when the implied volatility cannot be deduced from the given values.

ImpliedVolatilityDemoException

putOnIndexVolatility

public double putOnIndexVolatility(double yield,
                                   double indexValue,
                                   double strike,
                                   double riskFreeRate,
                                   Date evaluationDate,
                                   Date maturityDate,
                                   double putValue,
                                   BusinessCalendar businessCalendar)
                            throws OptionsException,
                                   ImpliedVolatilityDemoException

Calculates the implied volatility of an index from the Black-Scholes formulae, knowing the value of a call option on that index.

Parameters:

yield - the continuous yield of the index

indexValue - the value of the index at time zero

strike - the strike of the option

riskFreeRate - the continuously compounded risk free interest rate

putValue - the market value of the put option

evaluationDate - the date when the implied volatility of the option contract is evaluated

maturityDate - the date when the option contract matures

businessCalendar - The instance of a BusinessCalendar interface implementation. Specify null to select the London business calendar.

Throws:

OptionsException - thrown when the implied volatility cannot be deduced from the given values.

ImpliedVolatilityDemoException

putOnIndexVolatility

public double putOnIndexVolatility(double yield,
                                   double indexValue,
                                   double strike,
                                   double riskFreeRate,
                                   double timeToMaturity,
                                   double putValue)
                            throws OptionsException,
                                   ImpliedVolatilityDemoException

Calculates the implied volatility of an index from the Black-Scholes formulae, knowing the value of a call option on that index.

Parameters:

yield - the continuous yield of the index

indexValue - the value of the index at time zero

strike - the strike of the option

riskFreeRate - the continuously compounded risk free interest rate

timeToMaturity - the time (in years) until the option contract matures

putValue - the market value of the put option

Throws:

OptionsException - thrown when the implied volatility cannot be deduced from the given values.

ImpliedVolatilityDemoException

callOnCurrencyVolatility

public double callOnCurrencyVolatility(double foreignRiskFree,
                                       double exchangeRate,
                                       double strike,
                                       double riskFreeRate,
                                       Date evaluationDate,
                                       Date maturityDate,
                                       double callValue,
                                       BusinessCalendar businessCalendar)
                                throws OptionsException,
                                       ImpliedVolatilityDemoException

Calculates the implied volatility of a currency from the Black-Scholes formulae, knowing the value of a call option on that currency.

Parameters:

foreignRiskFree - the continuously compounded risk free interest rate in the foreign currency

exchangeRate - the present exchange rate

strike - the strike of the option

riskFreeRate - the continuously compounded risk free interest rate

callValue - the market value of the call option

evaluationDate - the date when the implied volatility of the option contract is evaluated

maturityDate - the date when the option contract matures

businessCalendar - The instance of a BusinessCalendar interface implementation. Specify null to select the London business calendar.

Throws:

OptionsException - thrown when the implied volatility cannot be deduced from the given values.

ImpliedVolatilityDemoException

callOnCurrencyVolatility

public double callOnCurrencyVolatility(double foreignRiskFree,
                                       double exchangeRate,
                                       double strike,
                                       double riskFreeRate,
                                       double timeToMaturity,
                                       double callValue)
                                throws OptionsException,
                                       ImpliedVolatilityDemoException

Calculates the implied volatility of a currency from the Black-Scholes formulae, knowing the value of a call option on that currency.

Parameters:

foreignRiskFree - the continuously compounded risk free interest rate in the foreign currency

exchangeRate - the present exchange rate

strike - the strike of the option

riskFreeRate - the continuously compounded risk free interest rate

timeToMaturity - the time (in years) until the option contract matures

callValue - the market value of the call option

Throws:

OptionsException - thrown when the implied volatility cannot be deduced from the given values.

ImpliedVolatilityDemoException

putOnCurrencyVolatility

public double putOnCurrencyVolatility(double foreignRiskFree,
                                      double exchangeRate,
                                      double strike,
                                      double riskFreeRate,
                                      Date evaluationDate,
                                      Date maturityDate,
                                      double putValue,
                                      BusinessCalendar businessCalendar)
                               throws OptionsException,
                                      ImpliedVolatilityDemoException

Calculates the implied volatility of a currency from the Black-Scholes formulae, knowing the value of a put option on that currency.

Parameters:

foreignRiskFree - the continuously compounded risk free interest rate in the foreign currency

exchangeRate - the present exchange rate

strike - the strike of the option

riskFreeRate - the continuously compounded risk free interest rate

putValue - the market value of the put option

evaluationDate - the date when the implied volatility of the option contract is evaluated

maturityDate - the date when the option contract matures

businessCalendar - The instance of a BusinessCalendar interface implementation. Specify null to select the London business calendar.

Throws:

OptionsException - thrown when the implied volatility cannot be deduced from the given values.

ImpliedVolatilityDemoException

putOnCurrencyVolatility

public double putOnCurrencyVolatility(double foreignRiskFree,
                                      double exchangeRate,
                                      double strike,
                                      double riskFreeRate,
                                      double timeToMaturity,
                                      double putValue)
                               throws OptionsException,
                                      ImpliedVolatilityDemoException

Calculates the implied volatility of a currency from the Black-Scholes formulae, knowing the value of a put option on that currency.

Parameters:

foreignRiskFree - the continuously compounded risk free interest rate in the foreign currency

exchangeRate - the present exchange rate

strike - the strike of the option

riskFreeRate - the continuously compounded risk free interest rate

timeToMaturity - the time (in years) until the option contract matures

putValue - the market value of the put option

Throws:

OptionsException - thrown when the implied volatility cannot be deduced from the given values.

ImpliedVolatilityDemoException

callOnFuturesVolatility

public double callOnFuturesVolatility(double futuresPrice,
                                      double strike,
                                      double riskFreeRate,
                                      Date evaluationDate,
                                      Date maturityDate,
                                      double callValue,
                                      BusinessCalendar businessCalendar)
                               throws OptionsException,
                                      ImpliedVolatilityDemoException

Calculates the implied volatility of a futures contract from the Black-Scholes formulae, knowing the value of a call option on that contract.

Parameters:

futuresPrice - the futures price at time zero

strike - the strike of the option

riskFreeRate - the continuously compounded risk free interest rate

callValue - the market value of the call option

evaluationDate - the date when the implied volatility of the option contract is evaluated

maturityDate - the date when the option contract matures

businessCalendar - The instance of a BusinessCalendar interface implementation. Specify null to select the London business calendar.

Throws:

OptionsException - thrown when the implied volatility cannot be deduced from the given values.

ImpliedVolatilityDemoException

callOnFuturesVolatility

public double callOnFuturesVolatility(double futuresPrice,
                                      double strike,
                                      double riskFreeRate,
                                      double timeToMaturity,
                                      double callValue)
                               throws OptionsException,
                                      ImpliedVolatilityDemoException

Calculates the implied volatility of a futures contract from the Black-Scholes formulae, knowing the value of a call option on that contract.

Parameters:

futuresPrice - the futures price at time zero

strike - the strike of the option

riskFreeRate - the continuously compounded risk free interest rate

timeToMaturity - the time (in years) until the option contract matures

callValue - the market value of the call option

Throws:

OptionsException - thrown when the implied volatility cannot be deduced from the given values.

ImpliedVolatilityDemoException

putOnFuturesVolatility

public double putOnFuturesVolatility(double futuresPrice,
                                     double strike,
                                     double riskFreeRate,
                                     Date evaluationDate,
                                     Date maturityDate,
                                     double putValue,
                                     BusinessCalendar businessCalendar)
                              throws OptionsException,
                                     ImpliedVolatilityDemoException

Calculates the implied volatility of a futures contract from the Black-Scholes formulae, knowing the value of a put option on that contract.

Parameters:

futuresPrice - the futures price at time zero

strike - the strike of the option

riskFreeRate - the continuously compounded risk free interest rate

putValue - the market value of the put option

evaluationDate - the date when the implied volatility of the option contract is evaluated

maturityDate - the date when the option contract matures

businessCalendar - The instance of a BusinessCalendar interface implementation. Specify null to select the London business calendar.

Throws:

OptionsException - thrown when the implied volatility cannot be deduced from the given values.

ImpliedVolatilityDemoException

putOnFuturesVolatility

public double putOnFuturesVolatility(double futuresPrice,
                                     double strike,
                                     double riskFreeRate,
                                     double timeToMaturity,
                                     double putValue)
                              throws OptionsException,
                                     ImpliedVolatilityDemoException

Calculates the implied volatility of a futures contract from the Black-Scholes formulae, knowing the value of a put option on that contract.

Parameters:

futuresPrice - the futures price at time zero

strike - the strike of the option

riskFreeRate - the continuously compounded risk free interest rate

timeToMaturity - the time (in years) until the option contract matures

putValue - the market value of the put option

Throws:

OptionsException - thrown when the implied volatility cannot be deduced from the given values.

ImpliedVolatilityDemoException