Assume the Black-Scholes framework. You are given: (i) The current price of a nondividend-paying stock is 80.

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Assume the Black-Scholes framework. You are given:

(i) The current price of a nondividend-paying stock is 80.

(ii) An investor has sold 1,000 units of a one-year at-the-money European call option on the stock. He immediately delta-hedges the commitment with 750 shares of the stock.

(iii) The continuously compounded risk-free interest rate is 7%.

(iv) The volatility of the stock is less than 100%.

Calculate the price of each call option.

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Derivative Pricing

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Authors: Ambrose Lo

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Question Posted: Nov 22, 2023 08:17 AM

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Assume the Black-Scholes framework. You are given: (i) The current price of a nondividend-paying stock is 80.

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We are told in ii that Ac Nd we have or Then 0 d 7501000 075 Sin...View the full answer

Derivative Pricing

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