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2. (30 points) You long a call 1 and delta-gamma hedges it. You are given the following information for two European call options on a
2. (30 points) You long a call 1 and delta-gamma hedges it. You are given the following information for two European call options on a stock priced using the Black-Scholes formula call 1 call 2 Day 0 Price 14.9835 10.2270 0.93200.9300 0.0030 0.0160 Day 1 Price 14.9800 10.2230 0.93000.9279 0.00350.0163 Day 0 Day 0 1. Day 1 Day 1 The day 0 and day 1 stock price is 60 and r-5%. (1) Calculate the market-maker's overnight profit. (2) Calculate the number of shares of stock and number of call 2 one must long or short if you decide to re-delta-gamma hedge the position on the day 1. 2. (30 points) You long a call 1 and delta-gamma hedges it. You are given the following information for two European call options on a stock priced using the Black-Scholes formula call 1 call 2 Day 0 Price 14.9835 10.2270 0.93200.9300 0.0030 0.0160 Day 1 Price 14.9800 10.2230 0.93000.9279 0.00350.0163 Day 0 Day 0 1. Day 1 Day 1 The day 0 and day 1 stock price is 60 and r-5%. (1) Calculate the market-maker's overnight profit. (2) Calculate the number of shares of stock and number of call 2 one must long or short if you decide to re-delta-gamma hedge the position on the day 1
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