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Special Motors Corporations stock price S is $82, the strike price K is $85, the maturity T is 60 days, the implied volatility is 25%
Special Motors Corporations stock price S is $82, the strike price K is $85, the maturity T is 60 days, the implied volatility is 25% per year, and the risk-free rate r = 4% per year. The call value right now is $2.28. a. Compute the call options delta using BSM model (6 points) b. Explain how you would set up a delta hedge for a long call position with S = $82 and K = $85. Estimate the hedging error if the stock price increases to $85 and the call option value increases to $3.71
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