May 9th, 2007, 5:07 pm
Well, the 6th is pretty obvious.The volatility for N measurements is derived by the following formulawhere To calculate the implied volatility you have to know share prices and prices of some derivative traded on the market. E.g. if you know the price for the european option then you can compare the BS price for this option and as volatility is the only unknown parameter derive it from there - this is what is called implied volatility as I see it.Another this is that you'd have to get lots of options to adjust for the "smile" in real life The c) is solved by applying b)
Last edited by
Zedr0n on May 8th, 2007, 10:00 pm, edited 1 time in total.