Newton–Raphson Emulation Network for Highly Efficient Computation of Numerous Implied Volatilities

Abstract

In finance, implied volatility is an important indicator that reflects the market situation immediately. Many practitioners estimate volatility by using iteration methods, such as the Newton–Raphson (NR) method. However, if numerous implied volatilities must be computed frequently, the iteration methods easily reach the processing speed limit. Therefore, we emulate the NR method as a network by using PyTorch, a well-known deep learning package, and optimize the network further by using TensorRT, a package for optimizing deep learning models. Comparing the optimized emulation method with the benchmarks, implemented in two popular Python packages, we demonstrate that the emulation network is up to 1000 times faster than the benchmark functions.