Empirically, implied volatilities derived from the Black-Scholes formula tend to be higher on options with lower exercise
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Empirically, implied volatilities derived from the Black-Scholes formula tend to be higher on options with lower exercise prices. This suggests that option prices reflect the possibility of a sudden dramatic decline in stock prices. Such “crashes” are inconsistent with the Black-Scholes assumptions. p-69
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ISE Investments
ISBN: 9781266085963
13th International Edition
Authors: Zvi Bodie, Alex Kane, Alan Marcus
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