Answer: Replace 0% with 15%, recalculate the averaged volatility using 30% and 15%, use the new average to compute the option price using the BSM formula, and compare it with the market price.

## Explanation This question describes the **bisection method** for finding implied volatility: - **Initial bounds**: 0% (gives price < market price) and 30% (gives price > market price) - **First iteration**: Average = 15% → gives price still lower than market price In the bisection method: - When the calculated price is **lower** than the market price, the true implied volatility must be **higher** than the current estimate - When the calculated price is **higher** than the market price, the true implied volatility must be **lower** than the current estimate **Current situation**: - 15% gives price < market price → True IV > 15% - Therefore, we need to **replace the lower bound (0%) with 15%** and keep the upper bound (30%) - New range: 15% to 30% - New average: (15% + 30%)/2 = 22.5% This corresponds to **Option B**: "Replace 0% with 15%, recalculate the averaged volatility using 30% and 15%, use the new average to compute the option price using the BSM formula, and compare it with the market price." The bisection method continues iteratively narrowing the range until the calculated price converges to the market price.

Author: LeetQuiz Editorial Team