Under the Black-Scholes framework, suppose a non-dividend-paying stock has a current price of $100, and furthermore...
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Under the Black-Scholes framework, suppose a non-dividend-paying stock has a current price of $100, and furthermore that the expected continuously compounded rate of return on the stock is 0.15, r = 0.06, and o = 0.30. Consider a Straddle composed of long positions on European calls and put options on the stock with a strike price of 95 and one years to expiry. a. Calculate delta, gamma, vega, theta, and rho for the Straddle. b. Calculate the elasticity of the straddle. Interpret this value. c. By what percentage do you expect the price of the straddle to change if the stock price increases by $5? Use the Greeks for this calculation, and compare it by actually computing the price of the Straddle. d. Calculate the volatility and the Sharpe ratio of the rate of return of the straddle. Under the Black-Scholes framework, suppose a non-dividend-paying stock has a current price of $100, and furthermore that the expected continuously compounded rate of return on the stock is 0.15, r = 0.06, and o = 0.30. Consider a Straddle composed of long positions on European calls and put options on the stock with a strike price of 95 and one years to expiry. a. Calculate delta, gamma, vega, theta, and rho for the Straddle. b. Calculate the elasticity of the straddle. Interpret this value. c. By what percentage do you expect the price of the straddle to change if the stock price increases by $5? Use the Greeks for this calculation, and compare it by actually computing the price of the Straddle. d. Calculate the volatility and the Sharpe ratio of the rate of return of the straddle.
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a Delta 0 Gamma 00108 Vega 06255 Theta 02073 Rho 01793 Delta The delta of a straddle is zero since long positions on both calls and puts are held Gamma The gamma of a straddle is calculated using the ... View the full answer
Related Book For
Fundamentals of Investing
ISBN: 978-0133075359
12th edition
Authors: Scott B. Smart, Lawrence J. Gitman, Michael D. Joehnk
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