Calculate your change in value of your portfolio

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Reference no: EM132162790

Question -

Part A: A stock sells for 110. Its standard deviation is 30% per year. The interest rate is 4% per year. You decide to sell 50 six month call options at 105. You can use call options at 120 to delta-gamma hedge your portfolio, How much of this second option and shares of stock will you buy?

Part B: Assume you acquire the portfolio indicated by your answer in Part A. Also assume that immediately after you purchase it the stock price jumps to 80. By how much does your portfolio change in value?

Part C: Calculate your portfolio if you only want to delta hedge your call purchases. Then calculate your change in value of your portfolio if the stock jumps to 80.

Reference no: EM132162790

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