Explain why the VIX formula in equation (24.29) overestimates implied volatility if options are American. The following
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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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Some of the inputs in the VIX formula are the observed price...View the full answer
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