Ch18 - Volatility Smiles Chapter 18 Click to edit Master...

Info iconThis preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon
Click to edit Master subtitle style  7/7/11  Options, Futures, and Other Derivatives, 7th  Volatility Smiles Chapter 18 11
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
 7/7/11  Options, Futures, and Other Derivatives, 7th  What is a Volatility Smile? It is the relationship between implied volatility and strike price for options with a certain maturity The volatility smile for European call options should be exactly the same as that for European put options The same is at least approximately true for American options 22
Background image of page 2
 7/7/11  Options, Futures, and Other Derivatives, 7th  Put-call parity   p +S 0 e-qT  =  c +K e–r T  holds for  market prices ( p mkt and  c mkt) and for Black-Scholes  prices ( p bs and  c bs) It follows that  p mkt- p bs= c mkt- c bs When  p bs= p mkt, it must be true that  c bs= c mkt It follows that the implied volatility calculated from a  European call option should be the same as that  calculated from a European put option when both  33
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
 7/7/11  Options, Futures, and Other Derivatives, 7th  The Volatility Smile for Foreign Currency Options 44 Implied Volatilit y Strike Price
Background image of page 4
Image of page 5
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 06/26/2011 for the course BUS 316 taught by Professor N/a during the Spring '09 term at Simon Fraser.

Page1 / 14

Ch18 - Volatility Smiles Chapter 18 Click to edit Master...

This preview shows document pages 1 - 5. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online