Papers › Numerical Approximation of the Implied Volatility Under Arithmetic Brownian Motion

Numerical Approximation of the Implied Volatility Under Arithmetic Brownian Motion

29 Jun 2009archive 2025-07-28

Jaehyuk Choi, Kwangmoon Kim, Minsuk Kwak

We provide an accurate approximation method for inverting an option price to the implied volatility under arithmetic Brownian motion, which is widely quoted in Fixed Income markets. The maximum error in the volatility is in the order of 10−10 of the given option price and much smaller for the near-the-money options. Thus our approximation can be used as an exact solution without further refinements of iterative methods.

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