Consider the Black-Scholes model. What is the gamma of a digital option with payoff 1 ST>K at

Question:

Consider the Black-Scholes model. What is the gamma of a digital option with payoff 1_ST>Kat time T? Why would you not want to delta-hedge such an option?

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For book-img-for-question

Market Practice In Financial Modelling

ISBN: 9789814366540

1st Edition

Authors: Tan Chia Chiang

See More Books

Question Posted: Dec 23, 2023 05:21 AM

See More Questions

An object is moving on a circular path of radius 3 . 0 meters at a constant speed. The time re revolution is 4 . 7 s. What is the acceleration of the object?
You have the following unadjusted trial balance for Rogers Corporation at December 31, 2011: At year-end, you have the following data for adjustments: a. An analysis indicates that prepaid rent on...
A collect-on-delivery call (COD) costs zero initially, with the payoff at expiration being 0 if S Let S = $100, K = $100, r = 5%, = 20%, T t = 1 year, and = 0. a. Value a European COD call option...
What is the difference between a Type I error and a Type II error?
During 2012, its first year of operations as a delivery service, Underwood Corp. entered into the following transactions. 1. Issued shares of common stock to investors in exchange for $100,000 in...
What is a real-world example of data that could be modeled using a stack? Using a queue?
E2.8. Finding Financial Statement Information on the Internet (Easy) The Securities and Exchange Commission (SEC) maintains the EDGAR database of com- pany filings with the commission. Explore the...
Derive cost of goods sold in data in the statement of cash flows The section showing cash flow from operations, using the indirect method, for Ann Taylor Stores reported an increase in inventories of...
Frontier Ranch Supply is a
Derive the formula for the Black-Scholes vega for a call option. What about a digital call option with payoff 1 ST>K at time T?
Assume interest rates are lognormal. Compute the convexity adjustment for the fair value LIA rate. What would the convexity adjustment be if rates are normal? (In this question, assume semi-annual...
Consider the three-input CMOS NAND circuit in Figure P16.47. Assume $k_{n}^{\prime}=2 k_{p}^{\prime}$ and $V_{T N}=\left|V_{T P} ight|=0.8 \mathrm{~V}$. (a) If $v_{A}=v_{B}=5 \mathrm{~V}$,...
The cable supports two cylinders as shown. Cylinders E and F have a mass of 15 kg and 35 kg, respectively. Determine the sag dc and the tension in each segment of the cable. 2 m 2.5 m -2.5m- 2 m dc E...
A raft foundation having dimensions of 35 m x 35 m in plan is to be constructed on a deep deposit of sand. Foundation depth and the ground water table are both 5 m below the surface. Unit weight of...
Determine the number of 2 X 4 @ 92 5/8" studs needed for the garage in Figures 14.63 and 14.64. The studs are spaced 16 inches on center. Add two studs for each door and corner. Ignore the gable ends...
Sketch a cumulative flow diagram that represents the growth and dissipation of a rush hour period at a toll bridge with time-independent capacity. 1) Identify on the diagram: the arrival curve A(t),...
Plot the reciprocal lattice for a polycrystalline sample o fa material with a simple tetragonal structure and lattice parameters a = 4.0 A and c = 5.0 A. (Use a two dimensional section through the...
A U.S. government bond matures in 10 years. Its quoted price is now 97.8, which means the buyer will pay $97.80 per $100 of the bond's face value. The bond pays 5% interest on its face value each...
CLASS PERIO Solving Linear Equations: Variable on Both Sides Solve each equation. 1) 6r+ 7 = 13 + 7r 3) -7x-3x+2=-8x-8 5)-14 +66+7-26=1+5b 7) n-3n = 14-4n 2) 13-4x=1-x 4)-8-x= x - 4x 6)n+2=-14-n 8)...
Identify the product of the following reaction: Br Br ONa 2 NaBr C4H3O2 Nao
When trans-1-phenylpropene is treated with bromine, some syn addition is observed. Explain why the presence of a phenyl group causes a loss of stereospecificity. Br + En Br2 En Br Br Syn addition...
For each of the following cases, read the curved arrows and identify which arrow-pushing pattern is utilized: a. b. c. d. e. f. g. h. i. :Ci: -0-H - 0-H 0:0-I :O:
Famas Llamas has a weighted average cost of capital of 8.8 percent. The companys cost of equity is 12 percent, and its pretax cost of debt is 6.8 percent. The tax rate is 22 percent. What is the...
The common stock of a company paid 1.32 in dividens last year. Dividens are expected to gros at an 8 percent annual rate for an indefinite number of years. A) If the company's current market price is...
(1 point) Bill makes annual deposits of $1900 to an an IRA earning 5% compounded annually for 14 years. At the end of the 14 years Bil retires. a) What was the value of his IRA at the end of 14...

Consider the Black-Scholes model. What is the gamma of a digital option with payoff 1 ST>K at

Question:

Step by Step Answer:

The BlackScholes model is a mathematical formula used to calculate the price of options It assumes t...View the full answer

Market Practice In Financial Modelling

Students also viewed these Business questions