You sold a blue chip call option on Johnson and Johnson. Stock of JJ moves in the relationship with the Brownian motion - continuously without jumps, but volatility is not constant, but changes continuously (similarly to the stock price). Does hedging the option with futures contracts work, even if the stock market is closed over the weekend? Theta of the option is: Where q is dividend yield. Is the answer the same even if q is 0?
You sold a blue chip call option on Johnson and Johnson. Stock of JJ moves in the relationship with the Brownian motion - continuously without jumps, but volatility is not constant, but changes continuously (similarly to the stock price). Does hedging the option with futures contracts work, even if the stock market is closed over the weekend? Theta of the option is: Where q is dividend yield. Is the answer the same even if q is 0?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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You sold a blue chip call option on Johnson and Johnson. Stock of JJ moves in the relationship with the Brownian motion - continuously without jumps, but volatility is not constant, but changes continuously (similarly to the stock price). Does hedging the option with futures contracts work, even if the stock market is closed over the weekend?
Theta of the option is:
Where q is dividend yield.
Is the answer the same even if q is 0?
Transcribed Image Text:250(₁) - Ke-70(d₂)+qSe 90(d₁)
In() + (r_g+²²) r
OVT
d₁
d₂ = ²n (2) + (r-q-²²³)+
OVT
=d₁ - 0√T
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