MS&E 107 Lecture Notes - Lecture 7: Straddle, Options Strategies, Implied Volatility
19 Oct 2016
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95% of area under the graph is contained between + and - standard deviation of the mean (average value) On both tails, there is only 2. 5% of the area under the graph. At 50% the slope of the cumulative probability function is the greatest. At positive infinity the cumulative probability function reaches 1. stock, obligation to buy it in 12 weeks for . Increase volatility - 25% to 40% - the price bounces a lot more. If decrease, bounces a lot less (stock price) When evaluating call option, know what current price is, strike price, uncertainty (volatility sigma), and discount rate / net present value. Net present value: a dollar next year is not worth as much as a dollar today. Loan of a dollar per day - pay it back in a year. Inflation decreases the value of money in a year.
