Problem

Historical data suggest the standard deviation of an all-equity strategy is about 5.5% p...

Historical data suggest the standard deviation of an all-equity strategy is about 5.5% per month. Suppose the risk-free rate is now 1% per month and market volatility is at its historical level. What would be a fair monthly fee to a perfect market timer, according to the Black-Scholes formula?

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Solutions For Problems in Chapter 18