Mock test 1

AMITAG1990
Finance Junkie
Posts: 89
Joined: Sat Sep 22, 2012 12:35 pm

Mock test 1

Postby AMITAG1990 » Thu Nov 15, 2012 8:31 pm

Estimating future volatility using historical data requires time to adjust to current changes in the market & hence implied volatility is an alternative method for the estimating future volatility. How is implied volatility inferred from options?
Choose one answer.
a. Extrapolation of the most liquid at-the-money put and call options using Black Scholes Merton model Correct
b. Interpolation of the most liquid at-the-money put and call options using Black Scholes Merton model Incorrect
c. Extrapolation of the least liquid at-the-money put and call options using Black Scholes Merton model Incorrect
d. Interpolation of the least liquid at-the-money put and call options using Black Scholes Merton model Incorrect
The Correct answer is Extrapolation of the most liquid at-the-money put and call options using Black Scholes Merton model

I only know interpolation.. please explain me extrapolation..??

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