question archive The stock market volatility over the next month is unknown
The stock market volatility over the next month is unknown
Subject:FinancePrice:2.86 Bought7
The stock market volatility over the next month is unknown.
Suppose that the volatility σ will be either: 10% annualized, with probability 70%, or 20% annualized, with probability 30%. What is the “effective” volatility per annum? (In other words, if you are going to use Black-Scholes, what number will you use for σ)?
Purchase A New Answer
Custom new solution created by our subject matter experts
GET A QUOTE
Answer Preview
Effective volatility = (10% * 70%) + (20%*30%) = 7% + 6% = 13%
effective volatility is 13%
