Problem with impliedVolatility using DividendEngine

Posted by Ferghil O'Rourke on
URL: http://quantlib.414.s1.nabble.com/Problem-with-impliedVolatility-using-DividendEngine-tp4476.html

Hi,

I’m new to QuantLib and am having a problem generating an implied volatility

for an Option when dividends are involved using DividendVanillaOption and

FDDividendAmericanEngine. If there are no dividends on the underlier I have

no problem generating a volatility using VanillaOption and FDAmericanEngine.

The following code gives a “not enough points to interpolate” error:

 

DividendVanillaOption option(stochasticProcess, payoff,

amExercise, dividendDates, dividendPayments);

 

Size timeSteps = 101; 

 

// Finite differences engine

option.setPricingEngine(boost::shared_ptr<PricingEngine>(

              new FDDividendAmericanEngine(timeSteps,timeSteps)));

       

// Sample volatility given this FDDividendAmericanEngine..

Volatility v = option.impliedVolatility(optionPrice, 1.0e-4, 20, QL_MIN_VOLATILITY,

                                                              QL_MAX_VOLATILITY);

 

Being a newbie, I lifted this pretty much from the AmericanOption sample but changed

to use the dividend classes. I populate dividendDates and dividendPayments with Dates

and Amounts for each dividend payment. I’ve also tried changing the timeSteps

parameter to be odd/even and no change – I always get the “not enough points to

interpolate” error.

 

Like I say, code similar to above using VanillaOption and FDAmericanEngine gives

me a reasonable looking volatility figure. Am I going about generating implied

volatility in the right way? Any help pointers greatly appreciated.

 

Thanks,

Ferghil O’Rourke