Chandrika is short a European call option with strike price 11.00. The option expires in 3 months, the spot price is $10.75, the stock volatility is 29.00%, the risk free interest rate is 7.50% and the stock dividend rate is 0.75%. Chandrika delta hedges the position initially and then doesn’t adjust the delta hedge. When the option expires, the stock price is 12.75. Using the Black Scholes model, compute her profit or loss. A) -0.21 B) -0.25 C) -0.30 D) -0.16 E) -0.22

Chandrika is short a European call option with strike price 11.00. The option expires in 3 months, the spot price is $10.75, the stock volatility is 29.00%, the risk free interest rate is 7.50% and the stock dividend rate is 0.75%. Chandrika delta hedges the position initially and then doesn’t adjust the delta hedge. When the option expires, the stock price is 12.75. Using the Black Scholes model, compute her profit or loss. A) -0.21 B) -0.25 C) -0.30 D) -0.16 E) -0.22

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter20: Financing With Derivatives

Section: Chapter Questions

Problem 1P

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