Question

A stock is currently trading at $25.85. It is not expected to pay dividends over the...

A stock is currently trading at $25.85. It is not expected to pay dividends over the next year. You price a six-month call option on the stock with a strike of K=15 using the Black-Scholes model and find the following numbers: d1=2.115 d2=1.832 N(d1)=0.983 N(d2)=0.967 Given this information, the delta of the call is

Multiple Choice

0.983

0.967

2.115

1.832

Homework Answers

Answer #1

The delta of an option measures the amplitude of the change of its price in function of the change of the price of its underlying.Therefore the delta of the call is N(d1).

N(d1) = (lnv(S/K)+(r+.5σ2)t) / σ√t

K         Option strike price
N         Standard normal cumulative distribution function
r         Risk-free interest rate
σ         Volatility of the underlying
S         Price of the underlying
t         Time to option's expiry

δ=N(d1)

Answer- The delta of the call is 0.983.

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