1. Consider the index SP2 which is made up of firms A and B. The current share price of Firm A is 50 while it is 100 in the case of B. You obtain the following data about at-the-money call options with maturity one year: Firm A Firm B SP2
50 100 60 Strike
6.13 8.53 6.68 Premium
25% 15% 22% Implied volatility

The implied correlation between Firm A and B assets is closest to:

Implied correlation is the correlation between Firm A and B implied by the Black-Scholes model

a) 0.625
b) 1.44
c) 0.456
d) -0.35