Exam3F07 - A B Freeman School of Business MBA Professor...

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Unformatted text preview: A. B. Freeman School of Business MBA Professor Paul A. Spindt Financial Modeling Fall 2007 Third Examination General Directions • Submit your solutions to the specific questions below, in an EX- CEL Workbook, electronically to me at [email protected] with a copy to [email protected] Be sure to include your name on the document as well as on the email. • Your EXCEL document should be sufficient, but if you wish to add additional text, you may attach a PDF file containing your comments, explanations, doubts, excuses, or whatever. • Your must submit your solutions by 6:00 p.m. on Wednesday, October 10, 2007. • Enjoy. Specific Questions 1. The “Greeks” are measures of sensitivity of option prices to vari- ous parameters. Two important greeks are (a) Δ, which measures the sensitivity of an option price to varia- tion in the price of the underlying asset. For a European call on a non-dividend paying stock, Δ = N ( d 1 ) 1 where N () is the cumulative standard normal distribution function and d 1 is defined as in the Black-Scholes model. (b) Γ, which measures the sensitivity of Δ to variation in the price of the underlying asset. For a European call on a non-dividend paying stock, Γ = N ( d 1 ) Sσ √ T where N () is the standard normal density function, S is the price of the underlying asset, and σ is volatility....
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Exam3F07 - A B Freeman School of Business MBA Professor...

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