Exercise 4 11 (Implied Volatility) In the BlackScholes model, the volatility is not actually observed in the market Hence, given the other parameters, the implied volatility M is calculated from Equation (4 21)(4 22) and the market price cM of the call option Suppose t 0, r 0 02, S 100, K 100, and T 0 5 If the market price is cM 2 1, calculate the implied volatility M

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Question: Exercise 4.11 (Implied Volatility) In the BlackScholes model, the volatility is not actually observed in the market. Hence, given the other parameters, the implied

Exercise 4.11 (Implied Volatility) In the Black–Scholes model, the volatility

σ is not actually observed in the market. Hence, given the other parameters, the implied volatility σM is calculated from Equation (4.21)–(4.22) and the market price cM of the call option. Suppose t = 0, r = 0.02, S = 100, K = 100, and T = 0.5. If the market price is cM = 2.1, calculate the implied volatility σM.

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