Mentor: Jingyi Zhu
Fall 2007 project description
Municipal Bond Options (Muni Options) are currently priced using the volatility from the LIBOR interest rate. This creates an error in the Muni Option price because the volatility is computed from another financial instrument. In order to more accurately price a Muni Option, a volatility specific to this option should be derived from the current market price. This project will involve the research necessary to find the Muni Option volatility based on the percentage of market movement from day-to-day. The goal is to show that computing a specific volatility based off of current market price proves to be a more accurate approximation for pricing Muni Options.