Assume the Black-Scholes framework holds. Consider an option on a stock. You are given the following information at time 0: i) The stock price is 50 ii) The option price is 3.00 iii) The option delta is 0.611 iv) The option gamma is 0.020 v) The option theta (measured in days) is -0.133 The stock price changes to X after two days. Using the delta-gamma-theta approximation, you find that the option price changes to 1.90. Determine X. Possible Answers A 47.40 B 47.80

Assume the Black-Scholes framework holds. Consider an option on a stock. You are given the following information at time 0: i) The stock price is 50 ii) The option price is 3.00 iii) The option delta is 0.611 iv) The option gamma is 0.020 v) The option theta (measured in days) is -0.133 The stock price changes to X after two days. Using the delta-gamma-theta approximation, you find that the option price changes to 1.90. Determine X. Possible Answers A 47.40 B 47.80

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter5: Financial Options

Section: Chapter Questions

Problem 5P

See similar textbooks

Similar questions

You have observed the following returns over time: Assume that the risk-free rate is 6% and the market risk premium is 5%. What are the betas of Stocks X and Y? What are the required rates of return on Stocks X and Y? What is the required rate of return on a portfolio consisting of 80% of Stock X and 20% of Stock Y?
Consider shorting a call option c on a stock S where S = 24 is the value of the stock, K = 30 is the strike price, T = ½ is the expiration date, r = 0.04 is the continuously compounded interest rate per year, and  = 0.3 is the volatility of the price of the stock. Determine the delta ratio Δ .
Suppose you have the following information concerning a particular options.Stock price, S = RM 21Exercise price, K = RM 20Interest rate, r = 0.08Maturity, T = 180 days = 0.5Standard deviation,= 0.5 a. What is correct of the call options using Black-Scholes model? * Look for N(d1) and N(d2) from the cumulative standard normal distribution table:
Assume the following inputs for a call option: (1) current stock price is $25, (2) strike price is $28, (3) time to expiration is 4 months, (4) annualized risk-free rate is 5%, and (5) variance of stock return is 0.33. Use the Black-Scholes model to find the price for the call option. Do not round intermediate calculations. Round your answer to the nearest cent.
A. An option is trading at $5.03. If it has a delta of -.56, what would the price of the option be if the underlying increases by $.75? What would the price of the option be if the underlying decreases by $.55? B. What type of option is this and how? C. With a delta of -.56, is this option ITM, ATM or OTM and how?
A call option with X = $55 on a stock priced at S = $60 is sells for $12. Using a volatility estimate of σ = 0.35, you find that N(d1) = 0.7163 and N(d2) = 0.6543. The risk-free interest rate is zero. Is the implied volatility based on the option price more or less than 0.35?
Use the Black-Scholes model to find the price for a call option with the following inputs: (1) current stock price is $30, (2) strike price is $34, (3) time to expiration is 6 months, (4) annualized risk-free rate is 7%, and (5) variance of stock return is 0.09. Do not round intermediate calculations. Round your answer to the nearest cent.
Assume that you have been given the following information on Purcell Corporation's call options: Inputs Intermediate Calculations Current stock price = $12 d1 = 0.32863 Time to maturity of option = 9 months d2 = 0.05477 Variance of stock return = 0.10 N(d1) = 0.62878 Strike price of option = $12 N(d2) = 0.52184 Risk-free rate = 7% According to the Black-Scholes option pricing model, what is the option's value? Do not round intermediate calculations. Round your answer to the nearest cent. Use only the values provided in the problem statement for your calculations. $
Suppose that you purchased a call option on the S&P 100 Index. The option has an exercise price of 1,680, and the index is now at 1,720. What will happen when you exercise the option?
A call option on a stock index is valued using a three- step binomial tree with an up move that equals 1.05 and a down move that equals 0.95. The probability of the up move and of the down move is both 50%. The current level of the index is $190, and the option exercise price is $200. If the option value is positive when the stock price exceeds the exercise price at expiration and $0 otherwise, the number of terminal nodes with a positive payoff is: Group of answer choices two one three
Use the Black-Scholes Model to find the price for a call option with the following inputs: (1) current stock price is $30, (2) strike price is $35, (3) time toexpiration is 4 months, (4) annualized risk-free rate is 5%, and (5) varianceof stock return is 0.25.