Question: Assume the Black-Scholes framework. You are given: (i) The current price of a nondividend-paying stock is 70. (ii) The stocks volatility is 25%. (iii) The

Assume the Black-Scholes framework. You are given:

(i) The current price of a nondividend-paying stock is 70.

(ii) The stock’s volatility is 25%.

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

(iv) The following information about two European put options on the stock:

Put A B Current Price 6.9389 9.0062 Current Delta -0.2867 -0.3433 Current Gamma 0.0112 0.0121 Current Theta ?

Suppose you have just sold 1,000 units of Put A. You immediately delta-hedge and thetahedge your position by trading appropriate units of Put B and the stock. Calculate the amount of net investment you make today (including the sale of the 1,000 Put A).

Put A B Current Price 6.9389 9.0062 Current Delta -0.2867 -0.3433 Current Gamma 0.0112 0.0121 Current Theta ? -0.2060

Step by Step Solution

★★★★★

3.38 Rating (164 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

We need the current delta of Put A By the BlackScholes equation 005 ... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Derivative Pricing Questions!

KYC's stock price can go up by 15 percent every year, or down by 10 percent. Both outcomes are equally likely. The risk free rate is 5 percent, and the current stock price of KYC is 100. (a) Price a...

Assume the Black-Scholes framework. You are given: (i) The current price of a nondividend-paying stock is 50. (ii) The stocks volatility is 30%. (iii) The continuously compounded risk-free interest...

Last Sale Net Bid Ask Open Int Puts Last Sale Net bid Ask Vol Open Int 16Aug 155.00(1619H155-E) 6.45 0.75 6.95 7.25 9 16Aug 155.00(1619T155-E) 1.18 (0.75) 1.17 1.25 61 4505 16Aug 166.00(1619H160-E)...

For a two - period binomial model, you are given: ( i ) Each period is one year: ( ii ) The current price for a nondividend - paying stock is 2 0 . ( iii ) u = 1 . 2 8 4 0 ( iv ) d = 0 . 8 6 0 7 , (...

I need some help with a Finance Assignment.. Can you see attached? Assignment 1 Details Complete and submit Assignment 1, which is worth 15% of your final grade, after you have finished Unit 3. If...

Problem 7.4.10. (Delta-, gamma-, and theta-hedge given option Greeks table) Assume the Black-Scholes framework. You are given: (i) The current price of a nondividend paying stock is 50. (ii) The...

1. Assume the Black-Scholes framework. You are to price a European one-year asset-or-nothing put option on a stock. The stock, with current price S(0) = 100, pays dividends continuously at a rate...

Solve the following attachment with calculations 50. Assume the Black-Scholes framework. You are given the following information for a stock that pays dividends continuously at a rate proportional to...

Help, Don't give answers without showing all the calculations 65. Assume that a single stock is the underlying asset for a forward contract, a K-strike call option, and a K-strike put option. Assume...

a) Find the Fraunhofer diffraction (far field) intensity pattern I(0,0,) for two identical rectangular apertures (illuminated uniformly by light of wavelength 2) as shown at the right, of size a by...

Why is planning for a new business harder than planning for an established operation? In which do you have to make more assumptions? Why? What implicit assumption provides a shortcut in one situation?

1. LO.1 You are working with the top management of one of your clients in selecting the U.S. location for a new manufacturing operation. Craft a plan for the CEO to use in discussions with the...

5. Think of a person you know who seems to have positive affectivity. Think of another who has more negative affectivity. How constant are they in their expressions of mood and attitude?

List the factors that favor different organizational structures.

Explain the behavioral implications of different organizational designs.

Describe the seven key characteristics that capture the essence of the organization's culture.

Pacifica Papers Inc. needed to conserve cash, so instead of a cash dividend the board of directors declared a 1 5 % common share dividend on June 3 0 , 2 0 2 3 , distributable on July 1 5 , 2 0 2 3 ....

156 PYTHON PROGRAM WRITE A PYTHON PROGRAM POST A SCREENSHOT OF RESULT Write a program wotd.py that prints a random word of the day from a dictionary.

Logs are files updated by the system to include information about events that have occurred. For this lab, find all instances of the string "error" located in any of the files in the directory " c: \...