Bisection method for volatility-> VBA function not working..

Returns error-> whats wrong with the first function-> I defined the
option pricing formula in the other function


Option Explicit
Function ImpliedVol2(optType, S0, K, rcinterest, q, T, trueprice)

Dim optionpricelow As Double


Dim optionpricehigh As Double

Dim lowervol As Double
Dim uppervol As Double


Dim sigma As Double
Dim EJ As Double

sigma = 5
optionpricelow = BSMOptPrice(optType, S0, K, rcinterest, q, T, sigma)
sigma = 200
optionpricehigh = BSMOptPrice(optType, S0, K, rcinterest, q, T, sigma)


If optionpricehigh - trueprice > trueprice - optionpricelow Then
uppervol = (200 + 5) / 2
lowervol = 5
Else
uppervol = 200
lowervol = (200 + 5) / 2
End If

Do While EJ > 0.0001


sigma = lowervol
optionpricelow = BSMOptPrice(optType, S0, K, rcinterest, q, T, sigma)
sigma = uppervol
optionpricehigh = BSMOptPrice(optType, S0, K, rcinterest, q, T, sigma)

If optionpricehigh - trueprice > trueprice - optionpricelow Then
uppervol = (uppervol + lowervol) / 2
lowervol = lowervol
Else
uppervol = uppervol
lowervol = (uppervol + lowervol) / 2

End If

EJ = optionpricehigh - optionpricelow
Loop

ImpliedVol2 = sigma

End Function



Function BSMOptPrice(optType, S0, K, rcinterest, q, T, sigma)
' Calculates Black-Scholes-Merton option price
' optType = 1 for call, -1 for put
' This function uses Functions BSD1 and BSD2

Dim exprT, expqT, ND1, ND2

If S0 > 0 And K > 0 And T > 0 And sigma > 0 Then
exprT = Exp(-rcinterest * T)
expqT = Exp(-q * T)
ND1 = Application.NormSDist(optType * _
BSD1(S0, K, rcinterest, q, T, sigma))
ND2 = Application.NormSDist(optType * _
BSD2(S0, K, rcinterest, q, T, sigma))
BSMOptPrice = optType * (S0 * expqT * ND1 - _
K * exprT * ND2)
ElseIf S0 > 0 And K > 0 And sigma > 0 And T = 0 Then
BSMOptPrice = Application.Max(0, optType * (S0 - K))
Else
'MsgBox "One of the inputs provided is invalid"
BSMOptPrice = 0
End If

End Function


Private Function BSD1(S0, K, rcinterest, q, T, sigma)
' Calculates D1 for Balck-Scholes-Merton option pricing

BSD1 = (Log(S0 / K) + (rcinterest - q + 0.5 * sigma ^ 2) * T) / _
(sigma * Sqr(T))
End Function


Private Function BSD2(S0, K, rcinterest, q, T, sigma)
' Calculates D2 for Balck-Scholes-Merton option pricing

BSD2 = BSD1(S0, K, rcinterest, q, T, sigma) - (sigma * Sqr(T))
End Function

The code is all Greek to me, but I notice you are using EJ on the LHS of an
equation before it appears on a RHS, i.e. it is not set before you first use
it.
<eliasjohnk DeleteThis @yahoo.com> wrote in message
news:1182621537.765941.276400@p77g2000hsh.googlegroups.com...
> Returns error-> whats wrong with the first function-> I defined the
> option pricing formula in the other function
>
>
> Option Explicit
> Function ImpliedVol2(optType, S0, K, rcinterest, q, T, trueprice)
>
> Dim optionpricelow As Double
>
>
> Dim optionpricehigh As Double
>
> Dim lowervol As Double
> Dim uppervol As Double
>
>
> Dim sigma As Double
> Dim EJ As Double
>
> sigma = 5
> optionpricelow = BSMOptPrice(optType, S0, K, rcinterest, q, T, sigma)
> sigma = 200
> optionpricehigh = BSMOptPrice(optType, S0, K, rcinterest, q, T, sigma)
>
>
> If optionpricehigh - trueprice > trueprice - optionpricelow Then
> uppervol = (200 + 5) / 2
> lowervol = 5
> Else
> uppervol = 200
> lowervol = (200 + 5) / 2
> End If
>
> Do While EJ > 0.0001
>
>
> sigma = lowervol
> optionpricelow = BSMOptPrice(optType, S0, K, rcinterest, q, T, sigma)
> sigma = uppervol
> optionpricehigh = BSMOptPrice(optType, S0, K, rcinterest, q, T, sigma)
>
> If optionpricehigh - trueprice > trueprice - optionpricelow Then
> uppervol = (uppervol + lowervol) / 2
> lowervol = lowervol
> Else
> uppervol = uppervol
> lowervol = (uppervol + lowervol) / 2
>
> End If
>
> EJ = optionpricehigh - optionpricelow
> Loop
>
> ImpliedVol2 = sigma
>
> End Function
>
>
>
> Function BSMOptPrice(optType, S0, K, rcinterest, q, T, sigma)
> ' Calculates Black-Scholes-Merton option price
> ' optType = 1 for call, -1 for put
> ' This function uses Functions BSD1 and BSD2
>
> Dim exprT, expqT, ND1, ND2
>
> If S0 > 0 And K > 0 And T > 0 And sigma > 0 Then
> exprT = Exp(-rcinterest * T)
> expqT = Exp(-q * T)
> ND1 = Application.NormSDist(optType * _
> BSD1(S0, K, rcinterest, q, T, sigma))
> ND2 = Application.NormSDist(optType * _
> BSD2(S0, K, rcinterest, q, T, sigma))
> BSMOptPrice = optType * (S0 * expqT * ND1 - _
> K * exprT * ND2)
> ElseIf S0 > 0 And K > 0 And sigma > 0 And T = 0 Then
> BSMOptPrice = Application.Max(0, optType * (S0 - K))
> Else
> 'MsgBox "One of the inputs provided is invalid"
> BSMOptPrice = 0
> End If
>
> End Function
>
>
> Private Function BSD1(S0, K, rcinterest, q, T, sigma)
> ' Calculates D1 for Balck-Scholes-Merton option pricing
>
> BSD1 = (Log(S0 / K) + (rcinterest - q + 0.5 * sigma ^ 2) * T) / _
> (sigma * Sqr(T))
> End Function
>
>
> Private Function BSD2(S0, K, rcinterest, q, T, sigma)
> ' Calculates D2 for Balck-Scholes-Merton option pricing
>
> BSD2 = BSD1(S0, K, rcinterest, q, T, sigma) - (sigma * Sqr(T))
> End Function
>