Consider a one-year European call option on a stock when the stock price is $30, the strike price is $30, the risk-free rate is 4%, and the volatility is 25% per annum. Calculate the price and delta of the option Suppose an investor sold 50,000 of these call options. What stock position should he take to delta-hedge the call position Change the stock price to $30.1 and recompute the option price. Compare it to what the delta at a stock price of $30 would predict. Compute the delta when the stock price is $30.1. What changes does the investor need to make to delta-hedge the call position. Assume the investor had already taken the delta-hedging position you found in part b.
Consider a one-year European call option on a stock when the stock price is $30, the strike price is $30, the risk-free rate is 4%, and the volatility is 25% per annum. Calculate the price and delta of the option Suppose an investor sold 50,000 of these call options. What stock position should he take to delta-hedge the call position Change the stock price to $30.1 and recompute the option price. Compare it to what the delta at a stock price of $30 would predict. Compute the delta when the stock price is $30.1. What changes does the investor need to make to delta-hedge the call position. Assume the investor had already taken the delta-hedging position you found in part b.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Consider a one-year European call option on a stock when the stock price is $30, the strike price is $30, the risk-free rate is 4%, and the volatility is 25% per annum.
- Calculate the price and delta of the option
- Suppose an investor sold 50,000 of these call options. What stock position should he take to delta-hedge the call position
- Change the stock price to $30.1 and recompute the option price. Compare it to what the delta at a stock price of $30 would predict.
- Compute the delta when the stock price is $30.1. What changes does the investor need to make to delta-hedge the call position. Assume the investor had already taken the delta-hedging position you found in part b.
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