Assume the Black-Scholes framework. Three months ago, Tyler bought 100 units of an at-the-money European call option

Question:

Assume the Black-Scholes framework. Three months ago, Tyler bought 100 units of an at-the-money European call option on a nondividend-paying stock.

He immediately delta-hedged his position with appropriate units of an otherwise identical European put option, 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 36%.

(ii)

Stock price Call option price Call delta Call gamma Call theta (per year) Three Months Ago 45 ? 0.58082

Calculate Tyler’s three-month holding profit.

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Derivative Pricing

ISBN: 9780367734213

1st Edition

Authors: Ambrose Lo

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Question Posted: Nov 22, 2023 08:17 AM

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Assume the Black-Scholes framework. Three months ago, Tyler bought 100 units of an at-the-money European call option

Question:

Stock price Call option price Call delta Call gamma Call theta (per year) Three Months Ago 45 ? 0.58082 0.02785 -4.05975 Now 42 3.22341 0.4584 0.03711 -4.56265

Step by Step Answer:

Calculating Tylers threemonth holding profit Step 1 Calculate the BlackScholes price of the call option at purchase The BlackScholes price of a Europe...View the full answer

Derivative Pricing

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