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 reproduce Figure 24.7.)
Answer to relevant QuestionsCompute daily volatilities for 1991 through 2004 for IBM, Xerox, and the S&P 500 index. Annualize by multiplying by √ 252. How do your answers compare to those in Problem 24.1? Use the following inputs to compute the price of a European call option: S = $100, K = $50, r = 0.06, σ = 0.30, T = 0.01, δ = 0. a. Verify that the Black - Scholes price is $50.0299. b. Verify that the vega for this option ...What are the 1-, 2-, 3-, 4-, and 5-year zero-coupon bond prices implied by the two trees? a. What is the 2-year forward price for a 1-year bond? b. What is the price of a call option that expires in 2 years, giving you the right to pay $0.90 to buy a bond expiring in 1 year? c. What is the price of an otherwise ...Consider the expression in equation (26.6). What is the exact probability that, over a 1-day horizon, stock A will have a loss?
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