Assume the Black-Scholes framework. Consider a one-year at-the-money European put option on a nondividend-paying stock. You are
Question:
Assume the Black-Scholes framework.
Consider a one-year at-the-money European put option on a nondividend-paying stock.
You are given:
(i) The ratio of the current put option price to the current stock price is 0.073445.
(ii) The current put-option elasticity is −5.941861.
(iii) The continuously compounded risk-free interest rate is 1.2%.
Determine the stock’s volatility.
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