Using weekly price data (constructed Wednesday toWednesday), compute historical annual volatilities for IBM, Xerox, and the S&P 500 index for 1991 through 2004. Annualize your answer by multiplying by √ 52. Also compute volatility for each for the entire period.
Answer to relevant QuestionsCompute January 12 2004 bid and ask volatilities (using the Black-Scholes implied volatility function) for IBM options expiring February 21. a. Do you observe a volatility smile? b. For which options are you unable to ...Explain why the VIX formula in equation (24.29) overestimates implied volatility if options are American. The following three problems use the Merton jump formula. As a base case, assume S = $100, r = 8%, σ = 30%, T = 1, ...For the period 1999-2004, using daily data, compute the following: a. An EWMA estimate, with b = 0.95, of IBM's volatility using all data. b. An EWMA estimate, with b = 0.95, of IBM's volatility, at each date using only the ...Verify that the price of the 12% interest rate cap in Figure 25.6 is $3.909. 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 ...
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