How LIM Derives Implied Volatilities & Greeks

Please note the following points as to how LIM calculates the Implied Volatility for future options.

  • LIM take the futures options and values them using a modified Black-Scholes model. LIM assumes there is no carry cost.

  • The options are evaluated as European style options although they are American style options. Without carry cost in the model, there is no scenario where early exercise can be valued as an advantage. This is equivalent to a stock without dividends.

  • The LIBOR rate curve is used for the risk free rate for all instruments.

  • The LIBOR rate settlement process is ignored as LIM does not have a perfect model for future UK market holidays. Therefore, a 7 month LIBOR deal may settle 2 days earlier due to holidays. LIM does not account for this in the calculation.

  • LIBOR rates are interpolated using the number of days as follows: -

  • Implied Volatility is computed to 10e-6 places of price precision.

  • If the model doesn't settle in a reasonable number of iterations with the Ridders method, no value is computed for Implied Volatility nor Greeks.

MIM LIBOR rates are in the series: 
SHOW
     0: LIBOR_0
    W1: LIBOR_1W
    W2: LIBOR_2W
     1: LIBOR_1M
     2: LIBOR_2M
     3: LIBOR_3M
     4: LIBOR_4M
     5: LIBOR_5M
     6: LIBOR_6M
     7: LIBOR_7M
     8: LIBOR_8M
     9: LIBOR_9M
    10: LIBOR_10M
    11: LIBOR_11M
    12: LIBOR_1Y
 


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