A NEW ALGORITHM FOR COMPUTING IMPLIED VOLATILITY

Abstract

In this study, we simplified the Black-Scholes formula to a two-input

version. This simplified formula presents a one-to-one relationship with

one input given that the other input is fixed. With this simplified for

mula, we created an option-price data grid and showed that the implied

volatility can be obtained by interpolation. This interpolation-based al

gorithm does not require iteration and has an adjustable accuracy, which

is very useful in computing implied volatilities for a large number of

options in a real-time environment.