Here is some information about a European call and put on a stock. The current stock...

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Here is some information about a European call and put on a stock. The current stock price is $30 and the continuously compounded interest rate is 5% per annum. Black-Scholes-Merton Call 4.3511 Price Delta 0.4033 Gamma 0.0161 0.1526 -0.0002 0.2325 Vega Theta Rho (European) Put 7.0871 -0.3375 0.0161 0.1526 -0.0029 -0.5164 It should be noted that, in computing theta, time is measured in days, not in years. (a) (10 points) Suppose the underlying asset price increases from $30 to $30.60, what will be the approximate dollar change in the call price? (b) (10 points) Does the underlying asset pay a dividend? Explain. (c) Suppose that you buy one put option from your client, and delta-hedge the put position with the underlying stock. i. (10 points) What is the total investment (+ for cash outflow,- for cash inflow) required to achieve this delta-hedged position? ii. (10 points) If the stock price does not move overnight, what is your overnight mark-to-market profit? Here is some information about a European call and put on a stock. The current stock price is $30 and the continuously compounded interest rate is 5% per annum. Black-Scholes-Merton Call 4.3511 Price Delta 0.4033 Gamma 0.0161 0.1526 -0.0002 0.2325 Vega Theta Rho (European) Put 7.0871 -0.3375 0.0161 0.1526 -0.0029 -0.5164 It should be noted that, in computing theta, time is measured in days, not in years. (a) (10 points) Suppose the underlying asset price increases from $30 to $30.60, what will be the approximate dollar change in the call price? (b) (10 points) Does the underlying asset pay a dividend? Explain. (c) Suppose that you buy one put option from your client, and delta-hedge the put position with the underlying stock. i. (10 points) What is the total investment (+ for cash outflow,- for cash inflow) required to achieve this delta-hedged position? ii. (10 points) If the stock price does not move overnight, what is your overnight mark-to-market profit?

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a To estimate the approximate dollar change in the call price we can use the delta of the call optio... View the full answer