Suppose that on any given day the annualized continuously compounded stock return has a volatility of either

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Suppose that on any given day the annualized continuously compounded stock return has a volatility of either 15%, with a probability of 80%, or 30%, with a probability of 20%. This is a mixture of normals model. Simulate the daily stock return and construct a histogram and normal plot. What happens to the normal plot as you vary the probability of the high volatility distribution?
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Derivatives Markets

ISBN: 9789332536746

3rd Edition

Authors: Robert McDonald

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