Implied volatility formula of European Power Option Pricing

Details Implied volatility formula of European Power Option Pricing Implied volatility formula of European Power Option Pricing

2012-03-03

arxiv.org/abs/1203.0599v1

Economy

Quantitative Finance

Pricing of Securities

Scientific paper

We derive the implied volatility estimation formula in European power call options pricing, where the payoff functions are in the form of $V=(S^{\alpha}_T-K)^{+}$ and $V=(S^{\alpha}_T-K^{\alpha})^{+}$ ($\alpha>0$)respectively. Using quadratic Taylor approximations, We develop the computing formula of implied volatility in European power call option and extend the traditional implied volatility formula of Charles J.Corrado, et al (1996) to general power option pricing. And the Monte-Carlo simulations are also given.

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