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 J to0 40 or0 10 b How is the implied volatility plot affected by changing to 0 01 or 0 05 c How is the implied volatility plot affected by changing J to 0 1...

This is a difficult exercise The most difficult part is to set up the spreadsheet for the infinite s ...

Using the Merton jump formula, generate an implied volatility plot for K = 50, 55, . .

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 αJ to−0.40 or−0.10?
b. How is the implied volatility plot affected by changing λ to 0.01 or 0.05?
c. How is the implied volatility plot affected by changing σJ to 0.10 or 0.50?