Lori is a new hire and is keen to show her prowess in delta hedging to her boss. She reviews the

put options on Waste Connections Ltd. and sells 60,000 put options.

Spot price on the date of trading is 105$. Strike price is 95$. Risk Free rate is 5%, standard

deviation is 22% and time is 12 weeks

(a) Determine the call and put premium? (3 marks)

(b) How many shares should Lori buy/sell to delta hedge the portfolio? (2 marks)

(c) 4 weeks later, Lori reviews the delta hedge strategy and finds the stock price of Waste

Connections has fallen to 94$, how many shares should Lori buy/sell to delta hedge

the portfolio now? (3 marks)

(d) Given the strike, spot and delta levels at initiation, how do you think gamma will

behave? Will it be high or low? And given what happens after 4 weeks, will gamma

be higher or lower than what it was at initiation.