An Optimization Approach to Computing the Implied Volatility of American Options

  • Arun Sen
    • Categories Complementarity and Variational Inequalities, Finance and Economics, Nonlinear Optimization Tags , , Short URL: https://optimization-online.org/?p=8989

    We present a method to compute the implied volatility of American options as a mathematical program with equilibrium constraints. The formulation we present is new, as are the convergence results we prove. The algorithm holds the promise of being practical to implement, and we demonstrate some preliminary numerical results to this end.

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    Princeton University working paper, February 2005

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