Astpac Bank has just purchased 858 European call options, on stock with a current share price $40, with a strike price of $42 and a term to expiration of 3 years.

You know from past experience that the volatility of these shares is equal to 11% pa and that these shares have an average yield of 7% pa. Given that the risk free rate is 3% pa, calculate the delta of these options so that you can advise Eastpac Bank as to how they can hedge their portfolio position.

Answer rating: 100% (QA)

To calculate the delta of the European call options we can use the BlackScholesMerton model The delt... View the full answer