Which one of the following statements related to the implied standard deviation (ISD)is correct? A)The ISD is an estimate of the historical standard deviation of the underlying security. B)ISD is equal to (1 - D₁). C)The ISD estimates the volatility of an option's price over the option's lifespan. D)The value of ISD is dependent upon both the risk-free rate and the time to option expiration. E)ISD confirms the observable volatility of the return on the underlying security.

Question

Quizplus · Accepted Answer

The implied standard deviation (ISD) is a measure used in options trading that reflects the market's view on the future volatility of the underlying asset's price. It is derived from the price of the option itself, using models such as the Black-Scholes model. The value of ISD is indeed dependent on factors including the risk-free interest rate and the time to expiration of the option, as these elements are integral to the pricing models from which ISD is calculated.

Which One of the Following Statements Related to the Implied