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Unformatted text preview: hown in “Vol”, we have plotted the call
option prices and volatility using Excel function. This plot
gives us a rough idea about the implied volatility
If we find the call option price is 20, then vol = 45.0%~47.5% 15-7 Goal Seek for implied vol. (1)
As shown in the prior slide, Data Table could not
give us a very precise estimate of the implied
Let’s use “Goal Seek” function to help us to find
the precise implied volatility
Go to cell G11, $9.8263 is the call price based
on volatility 20%.
Now, select “Goal Seek” function, let the “set
cell” to be G11, let “To value” be 20, and let “By
changing cell” to be F11.
We find that F11 changes to 46.9% and G11
becomes very close to 20
So, the implied vol. is 46.9% given call price =
20 Goal Seek for implied vol. (2)
What if the call price drops to 15?
Implied vol = 33.65% given call price = 15
What if the call price ups to 25?
Implied vol = 60.32% given call price = 25
Our results suggest that the implied volatility
increases with call option’s prices.
So, when we observe a stock’s call option
price going up (given stock price, dividends,
and risk-free rate remain the same), we may
infer that the market expects the future
volatility going up
15-9 Goal Seek for implied vol. (3)
What if we have more than one European call
option for one stock?
Although we have one stock volatility, there
are more-than-one implied volatility estimates
based on several European call options
(various strike prices and option prices)
See “Vol2” tab for an example
We have to assign an initial value (I set 10%)
for the volatility for call options given different
We then try to find the market’s expected
volatility based on each option’s market price
15-10 Goal Seek for implied vol. (4)
X-axis denotes the strike prices of call
options, and Y-axis denotes the im...
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This document was uploaded on 03/03/2014.
- Spring '09