Assume that the Black-Scholes framework holds. Consider an option on a stock. You are given the following
Question:
Assume that the Black-Scholes framework holds. Consider an option on a stock.
You are given the following information at time 0:
(i) The stock price is S(0), which is greater than 80.
(ii) The option price is 2.34.
(iii) The option delta is −0.181.
(iv) The option gamma is 0.035.
The stock price changes to 86.00. Using the delta-gamma approximation, you find that the option price changes to 2.21.
Determine S(0).
(A) 84.80
(B) 85.00
(C) 85.20
(D) 85.40
(E) 85.80
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C The deltagamma approximation says that 1 221234 0181e 0035e2 or 00175e...View the full answer
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