Different volatilities would you expect to see for the stock

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Reference no: EM132002078

How many different volatilities would you expect to see for the stock?

Unfortunately, solving for the implied standard deviation is not as easy as Mal suggests. In fact, there is no direct solution for the standard deviation of the stock even if we have all the other variables for the Black–Scholes model. Mal would still like you to estimate the implied standard deviation of the stock. To do this, set up a spreadsheet using the Solver function in Excel to calculate the implied volatilities for each of the options.

Are all of the implied volatilities for the options the same? (Hint: No.) What are the possible reasons that can cause different volatilities for these options?

After you discuss the importance of volatility on option prices, your boss mentions that he has heard of the VIX. What is the VIX and what does it represent? You might need to visit the Chicago Board Options Exchange (CBOE) at www.cboe.com to help with your answer.

When you are on the CBOE website, look for the option quotes for the VIX. What does the implied volatility of a VIX option represent?

Reference no: EM132002078

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