# Question

Repeat Problem 24.16, except let αJ = 0.20, and in part (b) consider expected alternate jump magnitudes of 0.10 and 0.50.

The following two problems both use the CEV option pricing formula. Assume in both that S = $100, r = 8%, σ0 = 30%, T = 1, and δ = 0.

The following two problems both use the CEV option pricing formula. Assume in both that S = $100, r = 8%, σ0 = 30%, T = 1, and δ = 0.

## Answer to relevant Questions

Using the CEV option pricing model, set β = 1and generate option prices for strikes from 60 to 140, in increments of 5, for times to maturity of 0.25, 0.5, 1.0, and 2.0. Plot the resulting implied volatilities. (This should ...Replicate the GARCH(1,1) estimation in Example 24.2, using daily returns from on IBM from January 1999 to December 2003. Compare your estimates with and without the four largest returns. Verify that the 1-year forward rate 3 years hence in Figure 25.5 is 14.0134%. This problem builds on the previous problem using the same parameters, only valuing a call option instead of a bond. Using Monte Carlo, simulate the Vasicek process for 3 years. For each simulation trial, at the end of 3 ...Verify that the 1-year yield volatility of the 4-year zero-coupon bond price generated by the tree in Figure 25.5 is 0.14.Post your question

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