Either a call taken on an underlying value = 500; Strike price = 520; maturity = 90
Question:
Either a call taken on an underlying value = 500; Strike price = 520; maturity = 90 days; the 3-month risk-free interest rate is 9.075% (=r); volatility of the weekly underlying = 5.547% (weekly volatility, knowing that there are 52 weeks in the year; Please note: in the basic formula, the values are annual!)
Question 1: Determine the value of the call
Question 2: Consider a portfolio made up of 50 of these calls. Each is written about 1000 actions. Determine how many shares the seller must purchase in order to ensure a delta neutral position.
Question 3: Assuming that the price of these shares instantly decreases by 10, how does its coverage decrease?
Question 4: Same question as (3), knowing that this decrease is recorded in 7 days.
An Introduction To Financial Markets A Quantitative Approach
ISBN: 9781118014776
1st Edition
Authors: Paolo Brandimarte