Does anyone have Geske code that they can PM me with, or post in the file share section? Thank you very much in advance!

Well, I have identified the error in my model already, so I suppose a code won't be necessary after all...There is still one problem that prevents my code from working, that I thought experts here might know the answer to, here goes:How does one determine the initial value x0 for the Newton-Raphson problem of finding Geske's implied strike (i.e. critical value of S which marks the at-the-money boundary of the compound)? I usually use Manaster and Koehler for BS implied vol, but obviously that will not do the trick here I guess...anyone knows how to extend their method to compounds?

QuoteOriginally posted by: halldorpb ...How does one determine the initial value x0 for the Newton-Raphson problem of finding Geske's implied strike (i.e. critical value of S which marks the at-the-money boundary of the compound)? I usually use Manaster and Koehler for BS implied vol, but obviously that will not do the trick here I guess...anyone knows how to extend their method to compounds?I thought you just start with the strike of the compound. So, if you have an SPX $20 call on a 1150 put, your start value for the search would be $20.

QuoteOriginally posted by: PaperCutQuoteOriginally posted by: halldorpb ...How does one determine the initial value x0 for the Newton-Raphson problem of finding Geske's implied strike (i.e. critical value of S which marks the at-the-money boundary of the compound)? I usually use Manaster and Koehler for BS implied vol, but obviously that will not do the trick here I guess...anyone knows how to extend their method to compounds?I thought you just start with the strike of the compound. So, if you have an SPX $20 call on a 1150 put, your start value for the search would be $20.I tried using the strike of the underlying and it works just about perfectly...for the record Geske's critical value is measured in terms of the stock (it is solved for using the strike of the compound) and so is a more natural choice than using the strike of the compound. Anyways, excellent suggestion, got me on the right track!

Hi Halldorpb,Can you please post your VBA code or PM it to me. It would be much appreciated. Thanks. Btw, another paper you may be interested in (if you haven't seen it already) is Holger Schilling: "No arbitrage bounds and static hedging of compound options"

the collectors book has vba code for this

Thanks. What is the collectors book. Do you have a link for this?

The complete guide to option pricing formulas by espen gauder haug available from wilmott bookshop or amazon, has VBA code for lots of different option types

Thanks anyway, but I'd rather not purchase the book. I just need to confirm my output.