I am interested in doing some research on plain vanilla equity options and equity index options. I have historical data for these options. I also happen to have market maker 'fair price' (bid and ask) for SOME strikes for these options.
I want to 'backfill' the missing 'fair prices' for the strikes for which there is no data. There are two exercise types for the options data I have - US and Euro(pean). For the Euro style options, I will be using a simple BS model, for the US style options, I will be using a Binomial model.
To summarize, this is what I have:
- Historical bid/ask prices for all (liquid) strikes and maturities
- MM 'fair value' bid/ask values for SOME of the available strikes and maturities
What I want/need
MM 'fair value' bid/ask values accross ALL of the available strikes and maturities
My question is this:
Given the data that I have, how can I best 'backfill' the missing 'fair value' bid/ask prices?, so that I have 'fair value' bid/ask prices for all strikes and maturities.
A practical note worth pointing out: I can estimate historical volatility of the underlying if need be (for the BSM), but I will not have access to prevailing rates, dividend yields (and all the other 'niceties' required by some models).