Maybe this article can help and at least provides some examples.

@Fermion : just replaceerror=-(price-mktprc)/vega;byerror=-(price-mktprc);No comment with Epsilon=1E-8

In three iterations, it converge to the price, I send you the code in a private message

I see no error in your code,code of Vega function ?

In this case the algorithm should converge. Check the following things:- Did you recomputed the vega correctly?- Maybe you have a too small limit on the number of iterations- Maybe the admissible error is too high

Maybe it is just a problem of Vanna, when you shift the underlying, you shift the volatility too.

<t>Think about the B&S model. Why the volatility (that should be a unique property of the underlying) depends on the strike and the maturity? After that, the only thing that is possible to do is to build arbitrage free vol surface using B&S model and conditions of non arbitrage. But B&S ...

<t>If you compute the implied volatility in B&S model for all strikes and maturity, you will see that it is a pretty smooth surface. By grouping options in buckets of moneyness and volatility, you are just approximating this surface by some kind of stairs. B&S is a convenient model to expres...

Consider only the fixed income part of the CB : coupons, redemption and put.Discount the coupons and the redemption until maturity with the risky yield curveDiscount the coupons and the put strike until put date with the risky yield curveThe bond floor is the max of the two values.

What do you want to do exactly? If you want to summarize the entire B&S implied vol surface with only one value in order to price out the money options, you will be in trouble

<t>I think Alan696 wants to compare the dynamic of the volatility of equity major indices to volatility of CDS indices.He defines Y1(t) as the CDS time serie and Y2(t) as the equity time serie.He wants to estimate the garch(1,1) model i.e.:h(t) = a Epsilon(t-1)^2 + b h(t-1)whereEpsilon(t)=z(t).sqrt(...

<t>the bondholder's put always adds value to the convertible, in the fixed income part. Calculate the bond floor with and without the put option, the value is always greater with the put option. In a financial way, if the put is not at the advantage of the bondholder, he can hold the bond until matu...

<t>In quantitative strategies, if the distribution of L and P are perfectly symmetric, I don?t think you will be able to reach a hit ratio different than ½ in average. In fact what will be the new information that you bring to the system in order to predict something? Here it is conceptually a probl...

<t>If you want to hedge a portfolio of convertible bonds with a basket of CDS, maybe you should take a look on the different names of your portfolio. If the credit risk on your portfolio is not well replicated with one CDS index, it comes from the dispersion of your names. For CB, you can try a mode...

<t>Pricing a convertible as a sum of a straight bond and a call option will lead to serious mispricing because of the credit risk: you cannot count the credit risk for discounting the bond cash flows and therefore assume that the default probability is non zero, and pricing a call in a risk free wor...