Assume the Black-Scholes framework. For a nondividend-paying stock, you are given: i) The current stock price is 20. ii)
Posted: Tue Nov 16, 2021 8:15 am
Assume the Black-Scholes framework. For a nondividend-paying
stock, you are given:
i) The current stock price is 20.
ii) The stock’s volatility is 30%.
iii) The continuously compounded risk-free rate is 5%.
iv) The price of a 22-strike European put option expiring in 1
year is 2.93.
Suppose that you have just purchased 100 units of such put
options and you immediately delta-hedge your position by buying and
selling stocks and risk-free bonds. Calculate your profit if you
close your position six months later when the stock price increases
to 24 and the put price decreases to 2.55.
stock, you are given:
i) The current stock price is 20.
ii) The stock’s volatility is 30%.
iii) The continuously compounded risk-free rate is 5%.
iv) The price of a 22-strike European put option expiring in 1
year is 2.93.
Suppose that you have just purchased 100 units of such put
options and you immediately delta-hedge your position by buying and
selling stocks and risk-free bonds. Calculate your profit if you
close your position six months later when the stock price increases
to 24 and the put price decreases to 2.55.