Delta hedging - Consider a call option where K=55, =.25, =0 and r=.06. The option is a European call option. The option exprires in 42 trading days from now. Now the value of the option of course depends upon the price of the stock. The stock price is 60.

a) Start by finding the price of the call option and the delta hedge. How many shares are you supposed to hold? How much are you supposed to borrow? Carefully label the delta hedge as a share amount and a dollar borrowing.

b) Assume that a day goes by and the stock price rises to 61.50.

c) Compare how the option does compared to the delta hedge.

d) Suppose instead of rising it fell to 57.2.