What option pricing biases are likely to be observed when

Question # 00649360
Subject: Business
Due on: 09/30/2023
Posted On: 09/30/2023 12:41 AM
Tutorials: 1
Rating:
4.9/5
Question Dot Image

UCL Volatility Smile Case Study Questions

Study Questions – Volatility Smile

 1. What option pricing biases are likely to be observed when:

a. Both tails of the stock price distribution are thinner than those of the lognormal distribution?

b. The right tail is thinner, and the left tail is fatter, than that of a lognormal distribution?

2. What biases are caused by an uncertain volatility when the stock price is positively correlated with volatility?

3. What biases are caused by jumps in the movements of a stock price? Are these biases likely to be more pronounced for a six-month option than for a three-month option?

4. Why are the biases (relative to the Black-Scholes) for the market prices of in-themoney call options usually the same as the biases for the market prices of out-of-themoney put options?

5. Suppose the stock price follows a stochastic volatility model with the stock price and its volatility positively correlated. The Black-Scholes model is used to calculate implied volatilities for call and put options with different exercises prices and time to maturity. What patterns would you expect to observe in the implied volatilities?

Dot Image
Getsolution Posted By :
Questions: 14930 Tutorials: 14929
Tutorials for this Question

What option pricing biases are likely to be observed when

Tutorial # 00648242
Posted On: 09/30/2023 12:42 AM
Feedback Score: Not rated yet!
Purchased By: 2
Getsolution
Posted By:
Questions:
14930
Tutorials:
14929
Report this Tutorial as Inappropriate
Tutorial Preview
The solution of What option pricing biases are likely to be observed when...
Attachments
What_option_pricing_biases_are_likely_to_be_observed_when.ZIP (18.96 KB)

Great! We have found the solution of this question!

Related Questions
Business Process Management - Paradigms in Business Process Management
BUSINESS PROCESS MANAGEMENT To prepare: Read the article, “Paradigms in Business Process Management Specifications: A Critical Review.” Pay particular attention to the descriptions o …
MGMT620 Week 1 Quiz Latest 2024
MGMT620 week 1 Quiz: Introduction to Project Evaluation/Assessment Question 1 Which of the following terms is often used to denote a project that a powerful, high-ranking official is advocating? …
MAN671 - Compare and contrast three leaders
MAN671 Business Question Compare and contrast three leaders from any industry that possess charismatic and transformational leadership qualities. Explain the degree of ethics, diversity, and …
HRM538 Week 1 Discussion
HRM538: Week One Discussion Question this Crucial Learning video may help you respond to the questions that follow: Awkward Performance Review [Video]Links to an external site.. (2 mins, 38 s …
MGT323 Assignment 3 Project Management
MGT323 Business Question Assignment 3 Project Management (MGT 323) The Assignment must be submitted on Blackboard (WORD format only) via allocated folder. Assignments submitted through ema …
You are a new HR Manager who has been hired to work
HR powerpoint You are a new HR Manager who has been hired to work for a manufacturing company called Smith Industrial Operations Products Inc. (SIOP), which employs approximately 350, makes industr …
Change Management - For many companies, change is a constant
Change Management For many companies, change is a constant thing. A company that can smoothly navigate organization change is one that is more nimble and better able to meet market demands for prod …
What do you hope to accomplish with your e-portfolio
What do you hope to accomplish with your e-portfolio? Why and how? Share a brief presentation (PowerPoint, Prezi) of what you have included and intend to include in your e-portfolio.  The present …
MGT555 Unit 5 Discussion - Carl works as a waiter
unit 5 Discussion questions for Employment Law: MGT555 MGT555-2401B-02 Assignment Details Carl works as a waiter for a restaurant in Panama City Beach, Florida. The restaurant closes at 11:00 p. …
HRM533 Discussion - Culture and accountability have recently
HRM533 Discussion Question Culture and accountability have recently been blended within organizations due to fear of change or acceptance of the "that is how we have always done it" menta …
Recent Questions
Walden HLTH6038/HLTH8038E Module 6 Final Exam Latest 2024
HLTH-6038-1/HLTH-8038E-1 Health Behavior Theory-Spring 2024 Module 6 Final Exam Question 1 Religion plays a small and insignificant role in health behavior.  True  False &n …
Walden HLTH6038/HLTH8038E Module 5 Quiz Latest 2024
HLTH-6038-1/HLTH-8038E-1 Health Behavior Theory-Spring 2024 Module 5 Quiz Question 1 Step 6 of intervention mapping involves evaluation.   True   False Question 2 The pa …
Walden HLTH6038/HLTH8038E Module 4 Quiz Latest 2024
HLTH-6038-1/HLTH-8038E-1 Health Behavior Theory-Spring 2024 Module 4 Quiz Question 1 The coping appraisal construct of Protection Motivation Theory explains that when people believe a recomme …
Walden HLTH6038/HLTH8038E Module 3 Quiz Latest 2024
HLTH-6038-1/HLTH-8038E-1 Health Behavior Theory-Spring 2024 Module 3 Quiz Question 1 Behavioral control is determined by a set of beliefs the person has that help or hinder performance of the …
Walden HLTH6038/HLTH8038E Module 1 Quiz Latest 2024
HLTH-6038-1/HLTH-8038E-1 Health Behavior Theory-Spring 2024 Module 1 Quiz Question 1 A community level theory focuses on public policy.   True   False Question 2 The ter …
Walden HLTH6038/HLTH8038E All Assignments Latest 2024
HLTH-6038-1/HLTH-8038E-1 Health Behavior Theory-Spring 2024 Module 2 Assignment APPLYING THE HEALTH BELIEF MODEL TO POPULATIONS The Health Belief Model (HBM) has been used extensively to crea …
Walden HLTH6038/HLTH8038E Module 6 Assignment Latest 2024
HLTH-6038-1/HLTH-8038E-1 Health Behavior Theory-Spring 2024 Module 6 Assignment PRACTICAL APPLICATION OF THEORY/MODELS IN “REAL WORLD” SITUATIONS For this Assignment, you will id …
Walden HLTH6038/HLTH8038E Module 5 Assignment Latest 2024
HLTH-6038-1/HLTH-8038E-1 Health Behavior Theory-Spring 2024 Module 5 Assignment APPLYING THE PRECEDE-PROCEED MODEL From an ecological perspective, the Precede-Proceed model has been used to …
Walden HLTH6038/HLTH8038E Module 4 Assignment Latest 2024
HLTH-6038-1/HLTH-8038E-1 Health Behavior Theory-Spring 2024 Module 4 Assignment APPLYING THE SOCIAL-ECOLOGICAL MODEL The Social-Ecological Model (SEM) has been used to explain/predict behavio …
Walden HLTH6038/HLTH8038E Module 3 Assignment Latest 2024
HLTH-6038-1/HLTH-8038E-1 Health Behavior Theory-Spring 2024 Module 3 Assignment APPLYING THEORIES AND MODELS TO EDUCATIONAL INTERVENTIONS FOR TARGET POPULATIONS Creating educational interven …