Unformatted text preview: price. Call option prices increase with stock price, thus: Z>X. 2) An Option on stock XYZ has a delta of .5 a gamma of 0 a 7day theta of .1 a rho of 2 and a vega of 1. By how much will option XYZ’s price change if one week from today stock XYZ has decreased by $1 and stock XYZ’s implied volatility has increased by 1% and everything else remains unchanged? stock XYZ has decreased by $1 Option decreases by delta*$1 = $.5 stock XYZ’s implied volatility has increased by 1% Option increases by vega*1 = $1. One week goes by Option decreases by Theta*1 = $.1 Total change in option value = .5 + 1 .1 = $.4...
View
Full Document
 Winter '08
 CHABOT
 Implied volatility, stock xyz, higher implied volatility

Click to edit the document details