# Project I - NUMERICAL AND SIMULATION TECHNIQUES IN FINANCE...

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NUMERICAL AND SIMULATION TECHNIQUES IN FINANCE PROJECT I Edward D. Weinberger, Ph.D., F.R.M Adjunct Assoc. Professor Dept. of Finance and Risk Engineering Code and debug a VBA function that computes the implied volatility of an American equity put option that does not pay dividends. Because there is no analytical formula for this calculation, you must use one of the numerical root finding method such as one of those presented in an earlier class. You could decide to use the bisection method, but then you have to find an upper and lower bound for the volatility. An obvious lower bound on the volatility is that it has to be greater than zero. A not-so-obvious upper bound on the volatility of an American option is that it has to be smaller than the volatility of an otherwise identical European option selling at the same price (Why?). The more adventurous (and significantly faster!) way to compute implied volatility is to use the secant method, but then you have to find the two initial points. The two points

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## This note was uploaded on 04/05/2010 for the course FINANCE AN FRE6251 taught by Professor Weinberger,edward during the Fall '09 term at NYU Poly.

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Project I - NUMERICAL AND SIMULATION TECHNIQUES IN FINANCE...

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