a. Compute the historical volatility in terms of annualized standard deviation on the IBM shares, using the 12-month price data in the table above. Note that the volatility should be calculated on the stock returns and not on the stock prices. Obtain your answer to four decimal places (or two decimal places in percentage).
Today, is January 4, 2016. IBM common stock is selling at $135.95 per share. The stock has a dividend yield of 4% per year. The following table contains the monthly stock prices for IBM shares during the last 12 months.
|
Month (2015) |
IBM Share Price |
|
January |
148.46 |
|
February |
157.92 |
|
March |
156.51 |
|
April |
167.04 |
|
May |
166.69 |
|
June |
159.82 |
|
July |
159.16 |
|
August |
146.52 |
|
September |
143.62 |
|
October |
138.78 |
|
November |
139.42 |
|
December |
137.62 |
A call option with a March 18, 2016 expiration date and an exercise price of $130 is currently trading at $6.50. Each option entitles the holder to purchase 100 IBM shares. The risk-free rate is 0.58%, compounded continuously. Shares and options can only be bought and sold in whole numbers. Note that 2016 is a leap year.
a. Compute the historical volatility in terms of annualized standard deviation on the IBM shares, using the 12-month price data in the table above. Note that the volatility should be calculated on the stock returns and not on the stock prices. Obtain your answer to four decimal places (or two decimal places in percentage).
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