The implied volatility is obtained by finding the standard deviation that,when used in the Black-Scholes-Merton model,makes the
A)model price expire at zero
B)model price equal the market price of the option
C)model price such that it exceeds currently traded market option values
D)model price equal the intrinsic value of the underlying stock
E)none of the above

Question

Quizplus · Accepted Answer

The implied volatility is obtained by finding the standard deviation that, when used in the Black-Scholes-Merton model, makes the model price equal the market price of the option. This is because the Black-Scholes-Merton model is used to price options based on certain assumptions, including the volatility of the underlying asset. If the market price of the option is known, the implied volatility can be found by inputting the market price and other relevant information into the model and solving for the volatility.

The Implied Volatility Is Obtained by Finding the Standard Deviation