"Time decay is greatest for an option close to expiration." Use the spreadsheet functions to evaluate this statement. Consider both the dollar change in the option value and the percentage change in the option value, and examine both in-the-money and out-of-the-money options.
Answer to relevant QuestionsIn 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 ...Assume r = 8%, σ = 30%, δ = 0. In doing the following calculations, use a stock price range of $60-$140, stock price increments of $5, and two different times to expiration: 1 year and 1 day. Consider purchasing a ...Let S = $100, K = $120, σ = 30%, r = 0.08, and δ = 0. 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 option price as T →∞? b. Set δ ...Consider a 40-strike call with 365 days to expiration. Graph the results from the following calculations. a. Compute the actual price with 360 days to expiration at $1 intervals from $30 to $50. b. Compute the estimated ...You have purchased a 40-strike call with 91 days to expiration. You wish to deltahedge, but you are also concerned about changes in volatility; thus, you want to vega-hedge your position as well. a. Compute and graph the ...
Post your question