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From an on-line-quote system (or from talking with your broker or from WSJ a day later), you know on Oct. 15 that a November European
From an on-line-quote system (or from talking with your broker or from WSJ a day later), you know on Oct. 15 that a November European call with a strike price of $40 on Dig Eq (Digital Equipment) sells at 7 8 whereas Dig Eq stock sells at $37. Suppose that there are 5 weeks from Oct. 15 to the expiration date of the call. The risk-free rate is 3% per annum, and there are no dividends from today to November 30. What is the market's assessment of the volatility (the implied volatility) of Dig Eq stock?
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To solve this problem we can use the BlackScholes option pricing model to calculate the implied vola...
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Introduction To Derivatives And Risk Management
Authors: Don M. Chance, Robert Brooks
10th Edition
130510496X, 978-1305104969
