1. Consider an at-the-money European put option with a strike price of $30 and 6 months...

1. Consider an at-the-money European put option with a strike price of $30 and 6 months until

expiration.The underlying stock does not pay dividends and has a historical volatility of 35%. The risk-free rate is 3%.

a. (5 points) What is the options delta?

b. (5 points) What is the value of the option?

c. (5 points) If the stock price immediately changed to $24, what would be the estimated price of the option, using the delta approximation?

d .(5 points) Now consider the call option with the same information; compute its delta.

e. (5 points) If you purchase 10 of the put option and 5 of the call option, what is the delta of the resulting portfolio?

Solutions

Expert Solution

a,b and d) are answered above

c) If stock price changed to 24, put price will rise by 6*0.4269=2.5614 and it will become 2.7145+2.5614=5.2759

e) Delta of portfolio=10*(-0.4269)+5*0.5731=-1.4035

jeff jeffy answered 1 year ago

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