The main questions are where do I get the 'Risk Free Interest Rate' and which volatility value should I use?
I've searched and see lots of weird answers, so maybe this question does not have a "best" answer.
However, I would rather get advice than guess and wildly try tons of things.
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I've created a C# program which downloads a lot of data from TWS API
(My account info, portfolio, full stock histories, option values and Greeks, etc...)
I save most of it to an SQL database to for back testing and reduction of API calls.
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Now I'm building my Options models and have carefully rebuilt the common formulas using 'decimal' type for much much more accurate functions.
I found that most all copies online become inaccurate around the 5th digit especially after many iterations.
I've rebuilt both the Black-Scholes-Merton function and the Cumulative Normal Distribution code?
and the accuracy of any constant used (I think only Pi for this one).
(I know this is likely overkill - but I had fun doing this part.)
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Anyway, where do I get the 'Risk Free Interest Rate' to use in my Black-Scholes-Merton formula?
I read that maybe I should pull the rates from the interest rate of the 3 month us treasury bill.
If so, is that easily available through TWS API, or if not is there an easy online reference like a Yahoo finance query, etc?
Also, that the value might not actually change very much over many years?
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Also, which volatility value should I use?
I see these in my downloads:
field 10 - Bid Option Computation
field 11 - Ask Option Computation
field 12 - Last Option Computation
field 13 - Model Option Computation
field 23 - Option_Historical_Volatility
field 24 - Option_Implied_Volatility
field 58 - RT_Historical_Volatility
field 83 - Delayed_Model_Option
I suspect it would either be the (field 24 - Option_Implied_Volatility) OR (field 13 - Model Option Computation)
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Thank you for any help.
Don (KN3N)