Explanation:
Empirical results suggest implied volatility is greater than realized volatility on average, causing an upward bias in predictions.
(Book 4, Module 61.3, LO 61.e)
Ultimate access to all questions.
Question 94
Which of the following statements is not correct regarding the use of implied volatility to predict future volatility?
A
The implied volatility model assumes that asset prices follow a continuous-time lognormal diffusion process.
B
Options with the same underlying assets may trade at different “vol” terms.
C
Implied volatility is less than actual volatility on average.
D
Implied volatility data is limited to a few assets and markets.
No comments yet.