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Calculate the implied correlation

 
 
Lisanne
 
Reply Thu 12 Nov, 2020 05:32 am
Consider the index SP2 which is made up of firms A and B. The current share price of Firm A is 50 while it is 100 in the case of B. You obtain the following data about at-the-money call options with maturity one year:
Strike Premium Implied volatility
Firm A 50 6.13 25%
Firm B 100 8.53 15%
SP2 60 6.68 22%
The implied correlation between Firm A and B assets is closest to:

Implied correlation is the correlation between Firm A and B implied by the Black-Scholes model
Group of answer choices
a) 0.625
b) 1.44
c) 0.456
d) -0.35
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