Question

In: Finance

Consider the following data. S 27.8 X 25 r 0.02 T 0.5 sigma 0.17 Calculate the...

Consider the following data.

S

27.8

X

25

r

0.02

T

0.5

sigma

0.17
  1. Calculate the Black-Scholes value of the call option
  1. Calculate the delta
  1. How many units of the underlying stock should you hold to hedge a short position in 100 call option contracts? The contract multiplier is 100.

Solutions

Expert Solution

a. Value of the call option is $3.32/share. Calculation is given below:

Value of call option is $3.32/share

b. Delta is 0.8477

c. Number of stock I need to hold=0.5*100=50 shares to hedge my call option position.

jeff jeffy answered 1 year ago
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