In the absence of an explicit formula, we can estimate the change in the option price due
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In the absence of an explicit formula, we can estimate the change in the option price due to a change in an input-such as -by computing the following for a small value of : Vega = BSCall(S, K, +, r, t, 8) - BSCall(S, K, - , r, t, 8) 2
a. What is the logic behind this calculation? Why does need to be small? E
b. Compare the results of this calculation with results obtained from BSCall- Vega.
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