Question

Use below-given dataset:
Stock Price	20
Exercise Price	32
Time to Maturity in years	1
Risk Free Rate	8%
Volatility	30%
A) Calculate Call and Put Price. (2.5+2.5=5)
Greeks are given below:
	Call	Put
Delta	0.1251	-0.8749
Gamma	0.0343	0.0343
Theta	-0.0022	0.0043
Vega	0.0412	0.0412
Rho	0.0217	-0.2737
B) Interpret the GREEKS in detail. (3*5=15)

Answer 1

(A)

The Theoretical Value of Call Option will be: 0.3294

The Theoretical Value of PutOption will be: 9.8691

above answer can be simpaly calculated using Black Shole Model as follow

Simpaly put given values in formula you will get answer.

(B) Imterpretation of Greeks:

Delta: Delta is a measure of the change in an option's price, resulting from a change in the underlying security. And range of delta is between 0 to 1 for call and -1 to 0 for put

Gamma: Gamma measures the rate of changes in delta over time. So Gamma is sensitivity of delta. Gamma value always be highest for at the money option and lowest for deep in the money and deep out of money options.

Theta: Theta is basically time value of money, as the passage of time passes option value declines, and that factor is measured by Theta.

Vega: Vega is measure of Volitality, that how much option is volatile relative to its stock price. Higher Volaitality increases value for call and put both.

Rho: Rho represents the rate of change between options value and 1% change in risk free rate (or interest rate). So Rho is sensitivity of interest rate.