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Consider the European call option in Question 1 above (stock price = $36 strike price = $35, risk-free rate = 4%, volatility = 28%, and
- Consider the European call option in Question 1 above (stock price = $36 strike price = $35, risk-free rate = 4%, volatility = 28%, and time to maturity = 12 months).
- Using the provided option model, increase the stock price by $1.00 and note the change in the option value. How does the change in the option price compare to the delta calculated in 1b?
- Return the values to the starting values above and now increase the volatility from 28% to 29%. How does the change in the option price compare to the vega calculated in 1d?
- Return the values to the starting values above and now decrease the maturity by one day (1/365). How does the change in the option price compare to the theta calculated in 1e?
- The delta you estimated in 3a may have been a bit different from that calculated in question 1b. Why would your estimated delta be off?
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