FIN 3621 Options and Futures

Review Questions for Topic 9

Where needed use the Black-Scholes option pricing model. The table of N(x) is
provided separately. Keep 4 decimal points in your calculations.
1. Assume that a $50 strike Call has a 3.0% continuous dividend, = 27%, r
= 6% and 60 days from expiration. What is the gamma of the option for a
stock price movement from $48.00 to $49.00?
2. Assume that a $55 strike Call has a 1.5% continuous dividend, r = 5% and
the stock price is $50.00. If the option has 45 days until expiration, what is
the option vega (in the unit of $/%) given a shift in stock volatility from
33.0% to 34.0%?
3. Assume that a $60 strike Put has a 2.0% continuous dividend, = 30%, r =
5%, and the stock price is $61.00. What is the option theta (in the unit of
$/day) as the expiration time declines from 60 to 50 days?
4. Assume that a $75 strike Put has a 1.0% continuous dividend, = 33%, 90
days until expiration and stock price of $72.00. What is the option rho (in
the unit of $/%) as the interest rate changes from 5.0% to 6.0%?
5. What is the total dollar cost to enter a delta-hedged position on 200 shares
of written call options? Assume that each call option has a price of $4.16
and delta of 0.7644. The current stock price is $73.00.
6. What is the total dollar cost to enter a delta-hedged position on 200 shares
of written put options? Assume that each put option has a price of $5.27
and delta of 0.4505. The current stock price is $69.00.
7. Assume S = $33.00, = 32%, r = 0.06, div = 0.01. A $35 strike call option
with 68 days until expiration has a price of $1.1415, delta of 0.3854, and
gamma of 0.0838. What is delta-gamma approximated call option price at S
= $33.50?
8. Assume S = $45, = 25%, r = 0.05, div = 0. A $45 strike put option with
55 days until expiration has a price of $1.5713, delta of 0.4498, and
gamma of 0.0906. What is the delta-gamma approximation for the put price
if the stock price is $0.90 lower?

Tell the following statement is True or False?

9. Delta of the underlying asset is 1 and Gamma of the underlying asset is 0
10. Delta is non-negative for both American options and European options
FIN 3621 Options and Futures

11. Gamma is non-negative for both American options and European options
12. Vega is non-negative for both American options and European options
13. Theta is non-positive for both American options and European options
14. Gamma of a European call is the same as Gamma of an otherwise identical
European put
15. Vega of a European call is the same as Vega of an otherwise identical
European put
16. The underlying asset can be used to Gamma-hedge an option position.