Calculate volatilities by using a risk free interest rate, Financial Management

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1. In this query the implied volatilities are calculated by using a risk free interest rate of 2%. The computation are summarized by the following figure.

162_Calculate volatilities by using a risk free interest rate.png

2. The computations yield the following results in the Figure shown below.

The bid-ask spread on the implicit volatilities can be seen in the following Figure. Obviously these spreads aren't constant across options with different moneyness.

2418_Calculate volatilities by using a risk free interest rate1.png

3. When the two Figures are place together the result will be more like a skew.

1525_Calculate volatilities by using a risk free interest rate2.png


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