1. A trader uses delta hedging for managing the exposure of an option position. On day zero, the trader sold 100 call options on a non-dividend paying asset, with a maturity date of 60 days and an exercise price of $100. The current price for the underlying asset is $108 and its annual volatility is 35%. The continuous risk-free rate is 6%. What is the appropriate number of units of the underlying asset that the trader should hold on day zero for hedging the exposure?

a. 80

b. 75

c. 65

d. None, the underlying asset cannot be used to delta hedge an option position

2. Consider the following information, a call option on stock X is priced at $26. The spot price of stock X is $40. The price on the put option on stock X is $10 and the strike price is $25, with a time to exercise of 6 months for both contracts and annual interest rate of 10%. Based on the above information an arbitrage opportunity is represented by?

a. Buy the call option, short sell the underlying share, sell the put option, Invest the present value of the exercise price.

b. Borrow money to buy the stock, buy the call option, buy the underlying share, sell the put option.

c. buy the call option, buy the underlying share, sell the put option

d. Buy the put option, sell the call option, sell the underlying asset

3.

You own stocks in XYZ company and you want to hedge your exposure but you cant find a forward contract on British Petroleum shares. Therefore, you decide to do cross-hedging. Which of the following contracts would you utilize?

a. A futures contract whose underlying asset has a zero correlation with XYZ

b. A futures contract whose underlying asset has a correlation of 0.1 with XYZ

c. A futures contract whose underlying asset has a correlation of -0.8 with XYZ

d. A futures contract whose underlying asset has a correlation of 0.9 with XYZ