Wednesday, August 8, 2018

Does an implied volatility always exist for a binary option?


I'm trying to compute the implied volatility of a binary option but I cannot get some of the strikes to reach a convergent solution using either a Monte Carlo pricing model or an analytical Black Scholes model, minimizing using Newton's method. Since binaries are essentially the derivative of a vanilla call wrt the strike, is it even possible to always compute an implied volatility?




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