Demonstrate, for a flat volatility surface with a single cash dividend at time T1 size D,

Question:

Demonstrate, for a flat volatility surface σ with a single cash dividend at time T1 size D, that the subtractive dividend model correction to the implied volatility is to first order independent of maturity for T > T1.

Derive an expression for the size of the volatility shift.

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For book-img-for-question

The Value Of Uncertainty Dealing With Risk In The Equity Derivatives Market

ISBN: 9781848167728,9781908979582

1st Edition

Authors: George Kaye

See More Books

Question Posted: Jul 24, 2024 10:00 AM

See More Questions

Consider the case when the cost function satisfies C xe ( )=0. This can arise for different reasons. Consider the following two possibilities: (a) Suppose production and abatement costs (AC) are...
How does an assets ADR (asset depreciation range) relate to its MACRS category?
(d) What source of variation is included in these terms in the previous model, but excluded in the present model? Now suppose that the three types of oil tested are considered to comprise an...
Identify the sources of return and calculate the rate of return earned on an investment in a mutual fund, as well as evaluate the performance of an exchange traded fund.
Presented below is an amortization schedule related to Spangler Company??s 5-year, $100,000 bond with a 7% interest rate and a 5% yield, purchased on December 31, 2010, for $108,660. The following...
-Sales revenue in Period 1 is $3,000 and in Period 2 it is $4,000. The trend index figure for Period 2 (assuming Period 1 is given the value of 100) will be: -Sales revenue in Period 1 is $100,000...
Derive the expression for implied volatility under the subtractive dividend model, and demonstrate that a solution exists only for strikes above the forward value of cash dividends up to the expiry...
For the underlyer used in question 1, demonstrate, for a model calibrated at time T > T1, that the implied volatility of options priced for T < T1 will be less than regardless of whether a...
The marketing department of a major oil company wants to investigate whether cars get better mileage using their gas (Brand A) than from an independent one (Brand B) that has cheaper prices. The...
The following information is available for two different types of businesses for the 2011 accounting period. Dixon Consulting is a service business that provides consulting services to small...
Marino Basket Company had a $\$ 6,200$ beginning balance in its Merchandise Inventory account. The following information regarding Marino's purchases and sales of inventory during its 2011...
On March 6, 2011, Bob's Imports purchased merchandise from Watches Inc. with a list price of $\$ 31,000$, terms $2 / 10, n / 45$. On March 10, Bob's returned merchandise to Watches Inc. for...
The following events apply to Tops Gift Shop for 2012, its first year of operation: 1. Acquired $\$ 45,000$ cash from the issue of common stock. 2. Issued common stock to Kayla Taylor, one of the...
Indicate whether each of the following costs is a product cost or a period (selling and administrative) cost. a. Transportation-in. b. Insurance on the office building. c. Office supplies. d. Costs...
Ultra centrifuge find the required angular speed (in rev/min) of an ultracentrifuge for the radial acceleration of a point 2.50 cm from the axis to equal 400,000g (that is, 400,000 limes the...
The financial statements of Eastern Platinum Limited (Eastplats) are presented in Appendix A at the end of this textbook. Instructions (a) Does East plats report any investments on its statement of...

Demonstrate, for a flat volatility surface with a single cash dividend at time T1 size D,

Question:

Step by Step Answer:

The Value Of Uncertainty Dealing With Risk In The Equity Derivatives Market

Students also viewed these Business questions