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