What value does the black-scholes-merton model predict

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Show all your work. Round to 6 decimal places during the intermediate steps and round the final result to 4 decimal places

The following information is given about options on the stock of a certain company: S0 = $80 X = $82 r = 0.04 T = 1.2 ?? = 0.43 where r is a discrete interest rate. Answer the questions below

1. What value does the Black-Scholes-Merton model predict for the call?

2. Based on the value of delta, estimate the increase in the call's premium is the stock price increases by 1 dollar.

3. If you have 10,000 shares of the underlying stock, how t to construct a delta hedge? Make sure to mention the number of calls needed and your position on calls (assume each call option is written on one share of stocks)

Reference no: EM132801786

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