ecg590i_greeks_slides

ecg590i_greeks_slides - Example on Greeks All the options...

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Unformatted text preview: Example on Greeks All the options in this example are European. We assume that Black-Scholes holds. This morning, S = 50 , & = 0 : 2 and r = 0 : 05 . The following options are traded on the market: Option 1: call with K = 45 , T = 26 = 52 Option 2: call with K = 50 , T = 13 = 52 Option 3: call with K = 40 , T = 52 = 52 Option 4: call with K = 45 , T = 52 = 52 Option 5: call with K = 55 , T = 26 = 52 1 We can compute the price and the greeks of these options: c 1 = 6 : 7493 & 1 = 0 : 8395 1 = 0 : 0345 & 1 = 8 : 6191 c 2 = 2 : 3075 & 2 = 0 : 5695 2 = 0 : 0786 & 2 = 9 : 8220 c 3 = 12 : 2944 & 3 = 0 : 9286 3 = 0 : 0136 & 3 = 6 : 8136 c 4 = 8 : 3497 & 4 = 0 : 8097 4 = 0 : 0272 & 4 = 13 : 5813 c 5 = 1 : 4532 & 5 = 0 : 3349 5 = 0 : 0515 & 5 = 12 : 8787 This morning, our portfolio is composed of 10 units of option 1, 10 units of option 2 and 5 units of option 3. We want to hedge this portfolio....
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ecg590i_greeks_slides - Example on Greeks All the options...

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