Implied Mad with uniform distribution Underlying price is currently at 100, and follows a uniform distribution with mean of 100

Finance Oct 10, 2020

Implied Mad with uniform distribution

Underlying price is currently at 100, and follows a uniform distribution with mean of 100. You observed strike PUT priced at $2.50. what is the implied MAD?

Expert Solution

Minimum Absolute Deviation (MAD)= Mean Deviation/ No. of cases

Mean deviation= 0+ 80 *(2.50)- 100

= 100

No. of cases= 2

So,

MAD= 100/ 2

= 50

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