Assume the Black-Scholes framework. For a 3-month 32-strike European straddle on a stock, you are given: (i)

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Assume the Black-Scholes framework. For a 3-month 32-strike European straddle on a stock, you are given:

(i) The stock currently sells for $30.

(ii) The stock’s volatility is 30%.

(iii) The stock pays dividends continuously at a rate proportional to its price. The dividend yield is 2%.

(iv) The continuously compounded risk-free interest rate is 5%.

Calculate the current elasticity of the straddle.

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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. For a 3-month 32-strike European straddle on a stock, you are given: (i)

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The straddle is constructed by a long 3month 32strike Europe...View the full answer

Derivative Pricing

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