# Question

In the absence of an explicit formula, we can estimate the change in the option price due to a change in an input-such as σ-by computing the following for a small value of :

a. What is the logic behind this calculation? Why does need to be small?

b. Compare the results of this calculation with results obtained from BSCallVega.

a. What is the logic behind this calculation? Why does need to be small?

b. Compare the results of this calculation with results obtained from BSCallVega.

## Answer to relevant Questions

Suppose S = $100, K = $95, σ = 30%, r = 0.08, δ = 0.03, and T = 0.75. Using the technique in the previous problem, compute the Greek measure corresponding to a change in the dividend yield. What is the predicted effect of ...Assume r = 8%, σ = 30%, δ = 0. Using 1-year-to-expiration European options, construct a position where you sell two 80-strike puts, buy one 95-strike put, buy one 105-strike call, and sell two 120-strike calls. For a range ...Let S = $120, K = $100, σ = 30%, r = 0, and δ = 0.08. a. Compute the Black-Scholes call price for 1 year to maturity and for a variety of very long times to maturity. What happens to the price as T →∞? b. Set r = ...Repeat Problem 13.9 for a 91-day 40-strike put. Suppose you sell a 40-strike put with 91 days to expiration. What is delta? If the option is on 100 shares, what investment is required for a delta-hedged portfolio? What is your overnight profit if the stock price ...Post your question

0