Re:Pricing Americans with Finite-Difference
by smabie on Saturday December 23, 2023 @05:04PM
(#38748719)
You can just input diff IVs for BS for diff strikes, you don't have to actually ditch BS.
After all vol is the free parameter for BS
That being said, not an expert on non-d1 products so I could be wrong about how this is dealt with in practice
If the market believed in the model, options for the same security and the same expiration date would all have the same IV, which would be whatever volatility the market thinks the security is going to have.