Problem 1. Consider a European call option expiring in 3 months. The current stock price is $41, the strike price is $40, the volatility is 0.30 and the risk-free interest rate is 8%. You are taking the position of a writer of 10 option contracts. a) After one week the stock price is $42. Consider a delta hedging strategy with weekly rebalancing. Show all work in delta hedging strategy for the first two weeks of hedging (week 0 and week 1). You need to compute shares purchased, cost of shares purchased, cumulative cost and interest cost for week 0 with stock price $41 and week 1 with stock price $42 (see Table 18.2 on page 384). Approximate 3 months as 12 weeks. Do not use software and show all work. b) After one week the stock price is $39. Repeat the assignment in question (a) above with this setting. Problem 1. Consider a European call option expiring in 3 months. The current stock price is $41, the strike price is $40, the volatility is 0.30 and the risk-free interest rate is 8%. You are taking the position of a writer of 10 option contracts. a) After one week the stock price is $42. Consider a delta hedging strategy with weekly rebalancing. Show all work in delta hedging strategy for the first two weeks of hedging (week 0 and week 1). You need to compute shares purchased, cost of shares purchased, cumulative cost and interest cost for week 0 with stock price $41 and week 1 with stock price $42 (see Table 18.2 on page 384). Approximate 3 months as 12 weeks. Do not use software and show all work. b) After one week the stock price is $39. Repeat the assignment in question (a) above with this setting