You are considering purchasing a call option with a current stock price of $60 and an exercise price of $62, the option has 91 days to maturity (use a 365 day base), the yearly risk free rate is currently 2 and the volatility for the option is 0 3 c S 0 N(d 1 ) Ke rt N(d 2 ) p Ke rt N( d 2 ) S 0 N( d 1 ) c Ke rT p S Verify that the put call parity relationship holds for these two options What initial investment is required for a delta hedged portfolio (assume one option) Calculate the overnight profit or loss on the delta hedged portfolio if the stock price increases to $64 and if it decreases to $56

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Question: You are considering purchasing a call option with a current stock price of $60 and an exercise price of $62, the option has 91 days

You are considering purchasing a call option with a current stock price of $60 and an exercise price of $62, the option has 91 days to maturity (use a 365 day base), the yearly risk free rate is currently 2% and the volatility for the option is 0.3

c = S₀N(d₁) - Ke^-rtN(d₂) p = Ke^-rt N(-d₂) - S₀N(-d₁) c + Ke^-rT = p + S

Verify that the put call parity relationship holds for these two options.

What initial investment is required for a delta hedged portfolio (assume one option)?

Calculate the overnight profit or loss on the delta hedged portfolio if the stock price increases to $64 and if it decreases to $56.

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