Question
In: Finance
why you did not find a single implied volatility for each stock and why your implied...
why you did not find a single implied volatility for each stock and why your implied volatilities were arrayed as they are?
|
MSFT |
|||
|
Strike |
Option Price |
Implied-Volatility |
B-S Implied Volatility |
|
175. |
4.95 |
0.3279 |
0.132178 |
|
177.5 |
3.32 |
0.3157 |
0.124592 |
|
180. |
2.04 |
0.3103 |
0.118525 |
|
182.5 |
1.13 |
0.3027 |
0.113638 |
|
185. |
0.58 |
0.302 |
0.111275 |
|
Strike |
Option Price |
Implied-Volatility |
B-S Implied Volatility |
|
175. |
1.32 |
0.3477 |
0.105137 |
|
177.5 |
2.2 |
0.3413 |
0.100382 |
|
180. |
3.41 |
0.332 |
0.0930169 |
|
182.5 |
5.05 |
0.3452 |
0.0846884 |
|
185. |
7. |
0.3477 |
0.0560192 |
Solutions
Expert Solution
This is because implied volatility is not constant rather it is a function of strike price. There are various shapes of volatility such as volatility smile, voaltility skew etc. For a given expiration, deep in the money or out of the money options command higher prices (and thus implied volatilities) than what is suggested by standard option pricing models.
jeff jeffy answered 1 year agoRelated Solutions
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