Question
Six-month call on 1000 X shares with an exercise price of 45 euros. The share price today is 55 euros and its annualized volatility is
Six-month call on 1000 X shares with an exercise price of 45 euros. The share price today is 55 euros and its annualized volatility is 25%. The risk-free interest rate is 1% per year.
Question 1: Calculate today's price of this Call using the Black and Scholes model.
Question 2: Calculate the delta and gamma of this Call.
Question 3: How can the seller of such a Call make his position delta-neutral?
Question 4: In one month, the price of share X becomes 60 euros. Why is the previous position no longer delta-neutral and what should the seller do to make it delta-neutral again?
Step by Step Solution
3.48 Rating (155 Votes )
There are 3 Steps involved in it
Step: 1
Question 1 Calculate todays price of this Call using the Black and Scholes model The BlackScholes model is a mathematical model for pricing stock opti...
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Income Tax Fundamentals 2013
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
31st Edition
1111972516, 978-1285586618, 1285586611, 978-1285613109, 978-1111972516
