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11. Black-Scholes [8 marks] Consider a European call option on a non-dividend-paying stock when the stock price in $30, the strike price is $29, the
11. Black-Scholes [8 marks] Consider a European call option on a non-dividend-paying stock when the stock price in $30, the strike price is $29, the risk-free interest rate is 5%, the volatility is 25% per annum, and the time to maturity is four months. (i) Using the Black-Scholes formula, calculate the current value of the call option. (ii) To hedge the option risk at t = 0, how many shares must you hold? (iii) Calculate l' at t = 0. What does this measure (with respect to your hedging strategy)? 11. Black-Scholes [8 marks] Consider a European call option on a non-dividend-paying stock when the stock price in $30, the strike price is $29, the risk-free interest rate is 5%, the volatility is 25% per annum, and the time to maturity is four months. (i) Using the Black-Scholes formula, calculate the current value of the call option. (ii) To hedge the option risk at t = 0, how many shares must you hold? (iii) Calculate l' at t = 0. What does this measure (with respect to your hedging strategy)
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