XYZ stock is currently trading at $50 per share. We ask our favorite trading desk to...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
XYZ stock is currently trading at $50 per share. We ask our favorite trading desk to price a bunch of 6-month options on XYZ: 4 puts and 4 calls. The table above gives the information. For each option price we've run the price through the Black-Scholes formula and solved for the implied volatility. The table also gives the deltas: the derivative of each option price with respect to the stock price. As you know this means: Leave the implied vol, the interest rate, and the dividend rate unchanged; Change the current price of the stock by a small amount up and down, say +/- $0.01; Apply the call-price or the put-price formulas, C(S,t) or P(S,t), and obtain the "stock- price-up" and "stock-price-down" prices of the options; Numerically compute the derivative AOption/AS. This is the option's delta at that value of the underlying stock and that implied volatility. It's a measure of how sensitive the option price is to the price of the underlying stock. Note that we could also obtain the delta analytically by the taking the partial derivative (with respect to S) of the functions C(S,t) and P(S,t). XYZ stock is currently trading at $50 per share. We ask our favorite trading desk to price a bunch of 6-month options on XYZ: 4 puts and 4 calls. The table above gives the information. For each option price we've run the price through the Black-Scholes formula and solved for the implied volatility. The table also gives the deltas: the derivative of each option price with respect to the stock price. As you know this means: Leave the implied vol, the interest rate, and the dividend rate unchanged; Change the current price of the stock by a small amount up and down, say +/- $0.01; Apply the call-price or the put-price formulas, C(S,t) or P(S,t), and obtain the "stock- price-up" and "stock-price-down" prices of the options; Numerically compute the derivative AOption/AS. This is the option's delta at that value of the underlying stock and that implied volatility. It's a measure of how sensitive the option price is to the price of the underlying stock. Note that we could also obtain the delta analytically by the taking the partial derivative (with respect to S) of the functions C(S,t) and P(S,t).
Expert Answer:
Related Book For
Financial Markets And Institutions
ISBN: 978-0132136839
7th Edition
Authors: Frederic S. Mishkin, Stanley G. Eakins
Posted Date:
Students also viewed these finance questions
-
KYC's stock price can go up by 15 percent every year, or down by 10 percent. Both outcomes are equally likely. The risk free rate is 5 percent, and the current stock price of KYC is 100. (a) Price a...
-
You work for Leonard & Hofstadter, a financial intermediary. The company has written to various clients a total of 12,000 European 5-month call options and 7,000 European 8-month put options on...
-
XYZ stock is currently trading at $60 per share. You sell 10 puts at a premium of $1.50 with a strike of $56. Determine your gain or loss if: the stock price decreases to $53 per share at expiration....
-
You are asked to verify Kepler's Laws of Planetary Motion. For these exercises, assume that each planet moves in an orbit given by the vector- valued function r. Let r = ||r||, let G represent the...
-
A 5.00-grain aspirin tablet has a mass of 320 mg. For how many kilometers would the energy equivalent of this mass power an automobile? Assume 12.75km/L and a heat of combustion of 3.65 x 107 J/L for...
-
Do you think a person can be a successful leader and manager at the same time? Why?
-
Which item(s) appears as a reconciling item(s) to the book balance in a bank reconciliation? a. Outstanding checks b. Deposits in transit C. Both a and b d. None of the above
-
Marys Travel Agency had the following notes payable transactions: Apr. 1 Borrowed $4,000 from Finance Bank, signing a 90-day, 8% note. 5 Gave a $3,000, 60-day, 10% note to Krenshaw Airline for...
-
PROBLEM 1-1 (LO4,5) Preparing Financial Statements Following are the asset, liability, and equity items of Dumont Inc. at January 31, 2015, after its first month of operations. ASSETS LIABILITIES...
-
In the investment world, commodities are typically pretty boring. From livestock to grains to steel and other metals, commodities have their ups and downs. But long term, the world will always need...
-
Counselor Raquel is working through phase two of trauma treatment with client Layla. Raquel systematically has Layla retell her trauma story, specifically focusing on the parts of the story that are...
-
You have been hired as a junior auditor at Reece Limited ( REH ) and have been assigned to audit the selected company. You have been asked to provide a brief ( a 3 - min video ) to the audit partners...
-
What is the rate of return of some common stock indexes (what are some common indexes and how are they calculated is also a good question)? For example you can use the S&P index, but there are...
-
A retail store credited the Sales Revenue account for the sales price and the amount of sales tax on sales. If the sales tax rate is 5% and the balance in the Sales Revenue account amounted to...
-
What are the structural features of enzyme-substrate complexes that govern substrate specificity and catalytic efficiency, and how do these molecular interactions contribute to the overall enzymatic...
-
The operating income and the amount of invested assets in each division of Conley Industries are as follows: Retail Division Commercial Division Internet Division Operating income Invested Assets...
-
Match the statement on the left with the tax/fund/exemption on the right. The revenue from this Ohio tax is distributed: 1) 51% to all 88 counties based on population, 2) 34% to all 88 counties in...
-
Grace is training to be an airplane pilot and must complete five days of flying training in October with at least one day of rest between trainings. How many ways can Grace schedule her flying...
-
Pauls car slid off the icy road, causing $2,500 in damage to his car. He was also treated for minor injuries, costing $1,300. His car insurance has a $500 deductible, after which the full loss is...
-
Which of the money market securities is the most liquid and considered the most risk-free? Why?
-
Predict what will happen to interest rates on a corporations bonds if the federal government guarantees today that it will pay creditors if the corporation goes bankrupt in the future. What will...
-
Show that the period of free vibration of a load weighing \(W\) suspended from two parallel springs, as shown in Figure 2.59, is given by \(T\), \[ T=2 \pi \sqrt{\frac{W}{g\left(k_{1}+k_{2} ight)}}...
-
Derive Equation 2.30, \[ x(t)=B_{1} \cos \omega_{n} t+B_{2} \sin \omega_{n} t \] beginning with the equation of motion.
-
For a body suspended between two springs as in Figure 2.60, show that the period of oscillation is \[ T=2 \pi \sqrt{\frac{W}{g\left(k_{1}+k_{2} ight)}} \] ellel k W ellel k Figure 2.60: Body...
Study smarter with the SolutionInn App