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Although Solve can solve FinancialBond for an input parameter (e.g. par) given the price of a bond:

Solve[FinancialBond[
{"FaceValue" -> par, "Coupon" -> 0.08, "Maturity" -> 15, 
"CouponInterval" -> 1/2},
{"InterestRate" -> 0.06, "Settlement" -> 0}] == 1722.25, par]
{{par -> 1440.}}

it fails to solve FinancialDerivative for volatility given the price of an option:

Solve[FinancialDerivative[{"American", 
"Call"}, {"StrikePrice" -> 103., 
"Expiration" -> 1},  {"InterestRate" -> 0.01, 
"Volatility" -> vol, "CurrentPrice" -> 100, "Dividend" -> 0.0}] ==
26, vol]
Solve::ivar: 0.22745` is not a valid variable. >>
Solve[False, 0.22745]

This is a serious problem. Am I doing it wrong? Is it a known bug that Wolfram Research is working on??

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  • 2
    $\begingroup$ Is it a known bug that Wolfram Research is working on?? is most appropriate for a W forum or for W support. How on Earth could We:know? $\endgroup$
    – Dr. belisarius
    Commented Feb 25, 2016 at 4:28
  • $\begingroup$ It looks to me like vol has the value 0.22745. Try it after executing Clear[vol];. $\endgroup$
    – Ymareth
    Commented Feb 25, 2016 at 8:29
  • $\begingroup$ @Ymareth It might seem that way, but if you use 0.22745 as the value for volatility, the option price FinancialDerivative returns is 8.044 $\endgroup$
    – George Wolfe
    Commented Feb 25, 2016 at 12:21
  • $\begingroup$ @Dr.belisarius The Stack Exchangers often know what's considered a bug. $\endgroup$
    – George Wolfe
    Commented Feb 25, 2016 at 12:25
  • $\begingroup$ @GeorgeWolfe What we usually do is try the code on our OSs/MMa versions and try (many times subjectively) to decide whether it is a bug or not, and then tag the question accordingly. But we usually don't know if WR is/will be working on it. $\endgroup$
    – Dr. belisarius
    Commented Feb 25, 2016 at 12:36

1 Answer 1

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And the answer is ... I didn't know how to use the function. If you provide the the price of the option as a parameter, e.g. "Value"->10, and ask for implied volatility, the function will return it. 

 FinancialDerivative[{"American", "Call"}, {"StrikePrice" -> 103.,"Expiration" -> 1,
"Value" -> 10},  {"InterestRate" -> 0.01,"CurrentPrice" -> 100, "Dividend" -> 0.0},
"ImpliedVolatility"]

 0.275842

I got this answer from Wolfram Research Technical Support. It's in the documentation, but it's easy to miss. It's an example in the Scope section. Also, FinancialDerivative will return a list of parameters for each option type. 

FinancialDerivative[{"European", "Call"}]
{{"StrikePrice","Expiration"},{"CurrentPrice","Dividend","Volatility","InterestRate"}}
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  • $\begingroup$ good answer, indeed +1; But did they answer why is there a difference in approach between Bonds and Derivatives? $\endgroup$
    – garej
    Commented Mar 6, 2016 at 14:07
  • $\begingroup$ @garej The answer came in a notebook that was a modification of one I sent to the tech rep that was helping me. I didn't want to engage him in an extended conversation, so I didn't ask. FinancialBond might work that way too, but I was in the middle of a project and needed to get back to it, so I didn't experiment. $\endgroup$
    – George Wolfe
    Commented Mar 6, 2016 at 14:27

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