You buy 1000 six months ATM call options on a non-dividend paying asset with spot price 100, following a lognormal process with volatility 20%. Assume the interest rates are contant at 4%.

(a) How much do you pay for the options?

(b) What Delta-hedging position do you have to take?

(c) On the next trading day, the asset opens at 98. What is the value of your position (the option and shares position)? (

d) Had you not Delta-hedged, how much would you have lost due to the decrease in the price of the asset?