# Question

Using the Merton jump formula, generate an implied volatility plot for K =

50, 55, . . . 150.

a. How is the implied volatility plot affected by changing Î±J toâˆ’0.40 orâˆ’0.10?

b. How is the implied volatility plot affected by changing Î» to 0.01 or 0.05?

c. How is the implied volatility plot affected by changing ÏƒJ to 0.10 or 0.50?

50, 55, . . . 150.

a. How is the implied volatility plot affected by changing Î±J toâˆ’0.40 orâˆ’0.10?

b. How is the implied volatility plot affected by changing Î» to 0.01 or 0.05?

c. How is the implied volatility plot affected by changing ÏƒJ to 0.10 or 0.50?

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