1.A market-makerhas delta-hedged a written European put option on a stock. The continuous risk-free rate is 0.05. The Day 0 and Day 1 information is as follows:Day 0Day 1Stock price5055Calculate the 1-day mark-to-market profit.(A)-3 (B)-2 (C) -1(D) 0 (E) 1Put premium2.52Put delta-0.5-0.3

Put option give you opportunity to sell the stock on the expiration of period by payment of small…

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Stock price 50 55 Day 0 Day 1 the 1-day mark-to-market profit. Put premium 2.5 2 Put delta -0.5 -0.3

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Question

1.
A market-maker
has delta-hedged a written European put option on a stock. The continuous risk-
free rate is 0.05. The Day 0 and Day 1 information is as follows:
Day 0
Day 1
Stock price
50
55
Calculate the 1-day mark-to-market profit.
(A)-3 (B)-2 (C) -1
(D) 0 (E) 1
Put premium
2.5
2
Put delta
-0.5
-0.3

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