8. Suppose that you write a call option and hedge your exposure by buying enough shares...
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8. Suppose that you write a call option and hedge your exposure by buying enough shares of the stock to establish a delta-neutral position. a. No calculations required: If the stock price immediately falls from 100 to 94 will your position gain or lose in value? Explain briefly how you know. b. How would you have to rebalance (i.e., would you buy or sell shares) if the stock price increased to $101 the day after you established your position? No calculations required - just explain your answer. C. What would happen (qualitatively) to the value of your position if the market assessment of stock volatility increased to 30%? 8. Suppose that you write a call option and hedge your exposure by buying enough shares of the stock to establish a delta-neutral position. a. No calculations required: If the stock price immediately falls from 100 to 94 will your position gain or lose in value? Explain briefly how you know. b. How would you have to rebalance (i.e., would you buy or sell shares) if the stock price increased to $101 the day after you established your position? No calculations required - just explain your answer. C. What would happen (qualitatively) to the value of your position if the market assessment of stock volatility increased to 30%?
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a When stock price falls from 100 to 94 call option is not exercised and it gets laps ed so total am... View the full answer
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