Question assume the black-scholes framework for a 3-month, Ask an Expert

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Question: Assume the Black-Scholes framework. For a 3-month 32-strike European straddle

on a stock, you are given:

(i) The payoff of the straddle is the absolute value of the difference between the strike price and the stock price at the expiration date.

(ii) The stock currently sells for $30.

(iii) The stock's volatility is 30%.

(iv) The stock pays dividends continuously at a rate proportional to its price. The dividend yield is 2%.

(v) The continuously compounded risk-free interest rate is 5%.

Calculate the current elasticity of the straddle.

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M92775122

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