The concept of implied volatility of a VIX option. Implied Volatility: Implied volatility refers to the volatility of a stock option or an option calculated on the basis of the option’s price, stock price, strike price, risk free rate and expiration time. It is an estimated volatility on the basis of available information.

Question

Want to see the full answer?

Answer 1

Question

Chapter 22, Problem 5MC

Summary Introduction

To explain:The concept of implied volatility of a VIX option.

Implied Volatility:

Implied volatility refers to the volatility of a stock option or an option calculated on the basis of the option’s price, stock price, strike price, risk free rate and expiration time. It is an estimated volatility on the basis of available information.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

Your broker Luke works for a major bank that is working on the merger between ABC Inc. and XYZ Corp. The news is going to be released to the public next week. If you decide to buy some stocks now and split the profits with Luke, your actions should be categorized as ______. Question 27 options: A) It is not possible to tell from the information given B) ethical but illegal C) unethical but legal D) unethical and illegal E) ethical and legal

Question: If you were in Staci’s situation, what would you do? Ethical Dilemma Staci Sutter works as an ana-lyst for Independent Invest-mentBankShares(I2BS),which is a large investment banking organization. Shehas been evaluating an IPO that I2BS is handling for atechnology company named ProTech Incorporated.Staci is essentially finished with her analysis, and sheis ready to estimate the price for which the stockshould be offered when it is issued next week. Accord-ing to her analysis, Staci has concluded that ProTech isfinancially strong and is expected to remain financiallystrong long into the future. In fact, the figures providedby ProTech suggest that the firm’s growth will exceed30 percent during the next five years. For these rea-sons, Staci is considering assigning a value of $35 pershare to ProTech’s stock.Staci, however, has an uneasy feeling about thevalidity of the financial figures she has been evaluating.She believes the…

You would like to invest in ABC Corporation stocks. According to the stock broker, now is the best time to purchase it. Based on your own intrinsic valuation estimation, the stock is undervalued. A month later, the pandemic broke out and all stocks experienced significant decreases in their value. What should you do?a. File a case against the stock broker for misleading you to purchase the stocks.b. Switch from intrinsic valuation to relative valuation.c. Assume that the market is efficient and simply invest when there is excess cash and sell the investments which there will be large expenses.d. Acknowledge macroeconomic uncertainty and keep a cool but conscious mind about current and future investment plans.