Question: Consider a stock selling for $ 1 0 0 , with volatility ( standard deviation ) of 3 0 % per year. The stock pays

Consider a stock selling for $

100,

with volatility

(

standard deviation

)

30 %

per year. The stock pays no dividends. The risk

-

free continuously compounded interest rate is

4 % .

Now consider a call option on this stock with strike price

95

and

3 -

month maturity. What is the vega of the call? Vega should be calculated as the change in the value of the option given a one percentage point increase in sigma

(

.

.,

sigma increases by

. 01,

consistent with our class notes

) .

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

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 Finance Questions!

Consider an aperiodic signal x(n) with Fourier transform X(?). Show that the Fourier series coefficients C?v of the periodic signal are given by >* (n - IN) V(n) = i=-a -(#) 2 A = 0. 1... N 1

Consider a stock selling for $ 1 0 0 , with volatility ( standard deviation ) of 3 0 % per year. The stock pays no dividends. The risk - free continuously compounded interest rate is 4 % . The call...

Consider a stock selling for $ 1 0 0 , with volatility ( standard deviation ) of 3 0 % per year. The stock pays no dividends. The risk - free continuously compounded interest rate is 4 % . Confirm...

Consider a stock selling for $ 1 0 0 , with volatility ( standard deviation ) of 3 0 % per year. The stock pays no dividends. The risk - free continuously compounded interest rate is 4 % . If the...

Consider a stock selling for $ 1 0 0 , with volatility ( standard deviation ) of 3 0 % per year. The stock pays no dividends. The risk - free continuously compounded interest rate is 4 % . Now...

Consider a stock selling for $100, with volatility (standard deviation) of 30% per year. The stock pays no dividends. The risk-free continuously compounded interest rate is 4%. Now consider a call...

Consider a stock selling for $100, with volatility (standard deviation) of 30% per year. The stock pays no dividends. The risk-free continuously compounded interest rate is 4%. What is the...

A Geometric Brownian motion (GBM) is used to model a stock price: dS(t) = S(t)(bdt + dWt). In the above, b and are termed as the drift and the volatility of the underlying stock. Repeat Example 14.3...

IBM, which is considering the development of a quantum computer. Initial costs would be $5 billion and cash flows from year one through year five would be $1.3 billion. Let r = 14%. Four years from...

What are the policies adopted by some states in order to achieve economic growth and development?

5. The Form W-2, Wage and Tax Statement, is due for each employee who works for a business. Please answer True (T) or False (F) for each of the following statements about the Form W-2. a. The Federal...

cace Value \begin{tabular}{|r|r|} \hline C & \multicolumn{2}{|c|}{Z} \\ \hline 51,000 & $1,000 \\ \hline 4 & 4 \\ \hline 1 & 1 \\ \hline 8.2086 & 8.2086 \\ \hline \end{tabular} Vamprity coupon

6. That segment of a competitive firms marginal-cost curve that lies above its average-variable-cost curve constitutes the shortrun supply curve for the firm. Explain using a graph and words. LO10.5

LO11.4 Show how long-run equilibrium in pure competition produces an efficient allocation of resources.

7. last word If a firms current revenues are less than its current variable costs, when should it shut down? If the firm decides to shut down, should we expect that decision to be final? Explain...