implied blows up for binary option

Posted by Dirk Eddelbuettel on Feb 25, 2002; 7:26pm
URL: http://quantlib.414.s1.nabble.com/implied-blows-up-for-binary-option-tp10003.html

Playing with binaries, I noticed that implied Vol calculations abort:

edd@homebud:~/misc> cat binary_abrt.cc

#include <ql/quantlib.hpp>

int main(int argc, char* argv[])
{
  using namespace QuantLib;

  using QuantLib::Pricers::BinaryOption;

  try {
    double underlying = 102;
    double strike = 100;
    Spread dividendYield = 0.01;
    Rate riskFreeRate = 0.05;
    Time maturity = 1.0;
    double volatility = 0.60;
    BinaryOption BO = BinaryOption(Option::Call, underlying, strike,
                                   dividendYield, riskFreeRate, maturity,
                                   volatility);
    cout << "value is " << BO.value() << endl;
    double impliedVol = BO.impliedVolatility(1.1*BO.value());
    cout << "implied is " << impliedVol << endl;

  } catch (std::exception& e) {
    std::cout << e.what() << std::endl;

  } catch (...) {
    std::cout << "unknown error" << std::endl;
  }

  exit (0);
}
edd@homebud:~/misc> ./binary_abrt
value is 0.400098
root not bracketed: f[0.0001000000,4.0000000000] -> [0.20004910384016516556,0.20004910384016516556]

I don't understand why. Should somebody comment?

This is on Debian with the 0.3.0a5-20020120 packages.

Dirk

--
Good judgement comes from experience; experience comes from bad judgement.
                                                            -- Fred Brooks