Consider the gamma of a European call option with 1-year maturity on

the S&P500 index. The option has a strike of 2300, the dividend yield on

the S&P500 index is 2%, and its volatility is 15%. Further assume the

riskless interest rate is 5%.

(a) Plot the gamma of the option as a function of the underlying asset

price.

(b) For what values of the S&P500 index is the option’s gamma the

highest when the call approaches expiration?

Answer rating: 100% (QA)

To plot the gamma of a European call option on the SP500 index we need to calculate the gamma value at various underlying asset prices The gamma is th... View the full answer