Without using either the black-scholes-merton model

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Reference no: EM131057707

Consider a 1 year European call option with a strike price of $120. The spot stock price is $110, its volatility is 30% and it pays a 2% annual dividend yield, continuously compounded. The risk-free rate is 4%.

(a) What is the call delta? If the short party decides to delta-hedge the call, what would be the total cash flow (premium and hedge)?

(b) Without using either the Black-Scholes-Merton model or the binomial trees, what are the corresponding 1 year European put price and the put delta?

Reference no: EM131057707

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