For # 2 and #3 below, use the information from the Black-Scholes-Merton spreadsheet for the below call; C(S=51, X=50, T=0.1154): 2. Assume that you own 1000 shares of the stock from above. You want to set-up a hedge portfolio with this stock and the above call option that is delta-neutral. How many calls would you buy/sell? (make sure you indicate whether buying or selling) 3. Next, assume an investor buys 1000 of the above call options (10 contracts). a) Assume that the next day the estimated volatility increases from 32% to 38% (and nothing else changes). What is your estimate of the new price for call after the volatility change? (Make sure and show your work). b) Alternatively, assume that the next day the risk-free interest rate increased from 1% to 2.5%. What is your estimate for the new price for the call option after the interest rate change? (Make sure and show your work). For # 2 and #3 below, use the information from the Black-Scholes-Merton spreadsheet for the below call; C(S=51, X=50, T=0.1154): – Liusson

For # 2 and #3 below, use the information from the Black-Scholes-Merton spreadsheet for the below call; C(S=51, X=50, T=0.1154): 2. Assume that you own 1000 shares of the stock from above. You want to set-up a hedge portfolio with this stock and the above call option that is delta-neutral. How many calls would you buy/sell? (make sure you indicate whether buying or selling) 3. Next, assume an investor buys 1000 of the above call options (10 contracts). a) Assume that the next day the estimated volatility increases from 32% to 38% (and nothing else changes). What is your estimate of the new price for call after the volatility change? (Make sure and show your work). b) Alternatively, assume that the next day the risk-free interest rate increased from 1% to 2.5%. What is your estimate for the new price for the call option after the interest rate change? (Make sure and show your work). For # 2 and #3 below, use the information from the Black-Scholes-Merton spreadsheet for the below call; C(S=51, X=50, T=0.1154):