Question: Explain why the VIX formula in equation 24 29 overestimates implied

Explain why the VIX formula in equation (24.29) overestimates implied volatility if options are American.
The following three problems use the Merton jump formula. As a base case, assume S = $100, r = 8%, σ = 30%, T = 1, and δ = 0. Also assume that λ = 0.02, αJ =−0.20, and σJ = 0.30.

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  • CreatedAugust 12, 2015
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