Assume the Black-Scholes formula is valid exactly and S-40, K-45, r=0.08, T-91/365, cash dividend 0, and...

 

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Assume the Black-Scholes formula is valid exactly and S-40, K-45, r=0.08, T-91/365, cash dividend 0, and o=0.30. a. (3 points) What is delta and what is the call price? b. (3 points) To create a delta-neutral hedge of 100 share (long 100 shares), what investment is required for a delta-hedged portfolio (how many calls are short and what is the borrowing amount)? c. (3 points) What is your overnight profit if the stock tomorrow is $39.00? d. (3 points) What is your overnight profit if the stock tomorrow is $40.50? Assume the Black-Scholes formula is valid exactly and S-40, K-45, r=0.08, T-91/365, cash dividend 0, and o=0.30. a. (3 points) What is delta and what is the call price? b. (3 points) To create a delta-neutral hedge of 100 share (long 100 shares), what investment is required for a delta-hedged portfolio (how many calls are short and what is the borrowing amount)? c. (3 points) What is your overnight profit if the stock tomorrow is $39.00? d. (3 points) What is your overnight profit if the stock tomorrow is $40.50?

Answer rating: 100% (QA)

a Delta is 06 and the call price is 381 b Short 40 calls and borrow 2184 c Profit is 320 d Profit ... View the full answer