Question
Suppose that observations on a stock price (in dollars) at the end of each of 6 consecutive weeks are as follows: 20.0; 21.2; 23.6; 21.9;
Suppose that observations on a stock price (in dollars) at the end of each of 6 consecutive weeks are as follows:
20.0; 21.2; 23.6; 21.9; 20.5; 21.7
The plot of the implied volatility for one year options against the stock price was flat, but now has taken the shape of a smile. That is it is U shaped. Provide some reasons for the change in shape. Be very clear and precise.
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Corporate Finance Theory And Practice
Authors: Aswath Damodaran
2nd Edition
0471283320, 9780471283324
