The volatility smile
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The volatility smile
ContentslxCHAPTER 24The Full Jump-Orf fusion Model395Epilogue417APPENDIX ASome Useful Derivatives of the Black-Scholes-Merton Model419APPENDIX BBackwa The volatility smileard Itó Integrals421APPENDIX cVariance Swap Piecewise-Linear Replication431Answers to End-of-Chapter Problems433References497Index50184THE VOLATILITY SMILEconfined to the range $350 to $650, to calculate the fair variance for the swap. Assume a BSM implied volatility of 40% for all of the option pri The volatility smileces. You can find the option weights by calculating the value of the replicating portfolio (Equation 4.41) at $300, $350, S450,. . S650, $700.4-6. RepThe volatility smile
eat the previous problem, extending the range of options to .$250, $300,..., $750.5The P&L of Hedged Option Strategies in a Black-Scholes-Merton WorldContentslxCHAPTER 24The Full Jump-Orf fusion Model395Epilogue417APPENDIX ASome Useful Derivatives of the Black-Scholes-Merton Model419APPENDIX BBackwa The volatility smile-Mcrton options pricing formula.You can hedge the risk of an option in a variety of ways.The profit and loss (P&L) from hedging an option depends on which volatility you use to hedge.THE BLACK-SCHDLES-MERTON EQUATIONValuation by replication is the theoretical bedrock upon which the Black-Scholes-Mer The volatility smiletonThe volatility smile
ck price is continuous, with constant volatility and no jumps (one-factor geometric Brownian motion).■Traders can hedge continuously by taking on arbiContentslxCHAPTER 24The Full Jump-Orf fusion Model395Epilogue417APPENDIX ASome Useful Derivatives of the Black-Scholes-Merton Model419APPENDIX BBackwa The volatility smilee 5, a known constant volatility <7y, and an expected return. //5, together with a riskless bond with price B8586ContentslxCHAPTER 24The Full Jump-Orf fusion Model395Epilogue417APPENDIX ASome Useful Derivatives of the Black-Scholes-Merton Model419APPENDIX BBackwaGọi ngay
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