Asked by Osano Enoch on Jul 08, 2024
Verified
The current stock price of Alcoco is $70, and the stock does not pay dividends. The instantaneous risk-free rate of return is 6%. The instantaneous standard deviation of Alcoco's stock is 40%. You want to purchase a call option on this stock with an exercise price of $75 and an expiration date 30 days from now. Based on the Black-Scholes OPM, the call option's delta will be ________.
A) 0.28
B) 0.31
C) 0.62
D) 0.70
Call Option's Delta
A measure of how much the price of a call option is expected to change based on a one unit change in the price of the underlying asset.
Black-Scholes OPM
A model used to estimate the price of European-style options, leveraging factors such as underlying asset price, strike price, volatility, and time to expiration.
Instantaneous Risk-free Rate
The theoretical rate of return of an investment with zero risk at any given moment, used in certain financial models.
- Understand the principles of hedge ratios and deltas within options trading.
Verified Answer
DM
Desiree' MonroeJul 15, 2024
Final Answer :
B
Explanation :
△ = N = N (− 0.50129) = 0.308084
△ = N (d1) = 0.308084
△ = N = N (− 0.50129) = 0.308084
△ = N (d1) = 0.308084
Learning Objectives
- Understand the principles of hedge ratios and deltas within options trading.