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Tighter 'uniform bounds for Black-Scholes implied volatility' and the applications to root-finding

17 Feb 2023arXiv:2302.08758archive 2025-07-28

Jaehyuk Choi, Jeonggyu Huh, Nan Su

Using the option delta systematically, we derive tighter lower and upper bounds of the Black-Scholes implied volatility than those in Tehranchi [SIAM J. Financ. Math. 7 (2016), 893-916]. As an application, we propose a Newton-Raphson algorithm on the log price that converges rapidly for all price ranges when using a new lower bound as an initial guess. Our new algorithm is a better alternative to the widely used naive Newton-Raphson algorithm, whose convergence is slow for extreme option prices.

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