What is meant by the delta of a stock option

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1. A stock price is currently $40. It is known that at the end of 1 month it will be either $42 or $38. The risk-free interest rate is 8% per annum with continuous compounding. What is the value of a 1-month European call option with a strike price of $39?

2. Explain the no-arbitrage and risk-neutral valuation approaches to valuing a European option using a one-step binomial tree.

3. What is meant by the ‘‘delta'' of a stock option?

Reference no: EM131237325

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