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You buy 1000 six months ATM call options on a non-dividend paying asset with spot price 100, following a lognormal proves with volatility 30%. Assume the interest rates are constant at 5%.

a) How much do you pay for the options?

b) What Delta-hedging position do you have to take?

c) One the next trading day, the asset opens at 98. What is the value of your position (the option and shares position)?

d) Had you not Delta-hedged, how much would you have lost due to the decrease in the price of the asset?

Basic Finance, Finance

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  • Reference No.:- M941441

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