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3. At the close of the trading day you sell an atthemoney 6month European call on a nondividend paying stock trading at $80.00 with an
3. At the close of the trading day you sell an atthemoney 6month European call on a nondividend paying stock trading at $80.00 with an implied volatility of 50% when the continuouslycompounded rate of interest is 8%. This is the only position in your account. Your riskmanagement department tells you that the 99% coverage price range is :|:$6.0 and the 99% volatility coverage range is :|:20%. (a) Use your BlackScholes option pricer to calculate (and ll in the table below) your prot/ loss if you buy back your short option as a function the changes in stock price and volatility indicated (is. premium cost of Option with different stock price and volatility). Volatility 0.45 0.55 0.60 Stock Price 72.5 74.0 75.5 77.0 78.5 80.0 81.5 83.0 84.5 86.0 87.5 0.35
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