Comparative Analysis of Root Finding Algorithms for Implied Volatility Estimation of Ethereum Options

In this paper, a comparative analysis of traditional and hybrid root finding algorithms is performed in estimating implied volatility for Ethereum Options using the Black–Scholes model. Results indicate the efficiency of Newton–Raphson method in terms of algorithmic convergence as well as computatio...

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Bibliographic Details
Published in:Computational economics 2024-07, Vol.64 (1), p.515-550
Main Authors: Sapna, S., Mohan, Biju R.
Format: Article
Language:English
Subjects:
Algorithms
Behavioral/Experimental Economics
Bisection
Comparative analysis
Computer Appl. in Social and Behavioral Sciences
Computing time
Convergence
Derivatives
Digital currencies
Economic Theory/Quantitative Economics/Mathematical Methods
Economics
Economics and Finance
Estimation
Financial analysis
Futures
Hedging
Institutional investments
Math Applications in Computer Science
Methods
Monte Carlo simulation
Newton-Raphson method
Operations Research/Decision Theory
Securities prices
Stochastic models
Volatility
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Summary:In this paper, a comparative analysis of traditional and hybrid root finding algorithms is performed in estimating implied volatility for Ethereum Options using the Black–Scholes model. Results indicate the efficiency of Newton–Raphson method in terms of algorithmic convergence as well as computational time. Since Newton–Raphson method may not always lead to convergence, the best approximation technique is chosen from the convergent bracketed methods. The hybrid Bisection–Regula Falsi method serves as the best choice for root estimation among the bracketed methods under consideration.
ISSN:0927-7099
1572-9974
DOI:10.1007/s10614-023-10446-8