Pay particular attention to the implied volatility

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Pick any stock and look up the current Option prices. Pay particular attention to the implied volatility, the volatility which, if plugged into the Black-Scholes pricing formula along with the other known parameters, would yield the price of the option.

(a) Choose an expiry date, and plot the implied volatility of call options against the strike price, ignoring any implied volatilities of 0. What do you see, and what might explain this?

(b) Now select at least three more expiry dates, and repeat the same plot for each. What happens to implied volatility as time to maturity increases?

Reference no: EM133004344

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