You are given the following information on two european, Ask an Expert

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You are given the following information on two European call options written on stock XYZ at a strike of 175.

Maturity 11/16/2018 Price Maturity 01/17/2020 Price XYZ price

4/11/2018 12.50 20.10 178.10

4/12/2018 9.75 17.50 172.55

Assume an annual rate of interest of 2% and an annual dividend rate of 1%. Both rates are continuously compounded.

a) Compute the implied volatilities of both options on both dates. (You will compute four implied volatilities in total).

b) Create a P&L explanation for these two options. A P&L explanation is an explanation of the change in the option value between the two days. The change in value should be expressed as a function of delta, gamma, vega and time decay.

c) Discuss the main differences between the P&L explanations of the two options.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M93051386

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