Assume the Black-Scholes framework. One year ago, Kelvin bought 1,000 units of a European call option on
Question:
Assume the Black-Scholes framework. One year ago, Kelvin bought 1,000 units of a European call option on a nondividend-paying stock. He immediately delta-hedged his position with appropriate number of shares of the stock, but has not ever re-balanced his portfolio. He now decides to close out all positions.
You are given:
(i) The stock’s volatility is 20%.
(ii)
Calculate Kelvin’s 1-year holding profit.
Transcribed Image Text:
Stock price Call price Call delta Call gamma Call theta (per year) Call elasticity One Year Ago 40 5.6295 ? 0.0331 -1.6569 ? Now ? 5.7653 0.7296 0.0385 -2.1911 5.4417
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From the current elasticity we have S1 Ac1 C1 S1 43 Further...View the full answer
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