50.1K

Verified Solution

Link Copied!

This assignment is due Sunday. My professor has no internet so she cannot zoom due to the inclement weather. Will someome please help so I can check my work before I turn it in?!

Show all your work. Round to 6 decimal places during the intermediate steps and round the final result to 4 decimal places. Each question is worth 5 points. You may type your answers in a Word document or scan your handwritings into a PDF file. The following information is given about options on the stock of a certain company: So = $80 X - $82 r=0.04 T=1.2 0 =0.43 where r is a discrete interest rate. Answer the questions below (you may find the BSM spreadsheet useful): 1. What value does the Black-Scholes-Merton model predict for the call? 2. Based on the value of delta, estimate the increase in the call's premium is the stock price increases by 1 dollar. 3. If you huve 10,000 shares of the underlying stock, how to construct a delta hedge? Make sure to mention the number of calls needed and your position on calls (assume ench call option is written on one share of stocks) 4. What does the call's rho measure? Use rho to estimate the call option price when the discrete risk-free rate goes to 0.045. 5. What does the call's vega measure? Use vega to estimate the call option price when the volatility changes to o = 1.20. 6. What does the call's theta measure? Use theta to estimate the call option price in seven days. So 1980 x= 82 Vo= 0.04 4% T. 2 T= 1.2 - 3us 12 2 0 = .43 . 13- di =(Bo/B2)+(.04 + 2.93 .43 x2) x .0)/(.43 x 2.100.5)) = .933 d2= .933- (0.43 * (0.10165)zoe N (di) = 8241 Widz) = .74966 Nldsz, 1754 N.2) 2505 6=80 B216-62 * e^(-11 > .43) x 74966 C = 17.29 P=72e (-.1 .43x 2505-80 1754 P=2.24 2. 1.00= .43 x + 2.24 -224 -2.24 4.24 = 43x .43 43 (x2-2.66 increase of premium 3. 10,000 -2.88 = -2.88 = (-28, 600 underlying Stock 4.ts rate of derivative changed di=933 10482 - as log (80 162) + (.04 + 120)=1.063 sensitivity to "Change Le 1 II #f ecos xc 1/x 17.29 Call theton (2.47 Da sensitifity of to Change n next 7 days

Answer & Explanation Solved by verified expert

See Answer