Black-scholes

Question 1

Delta of a call

Answer 1

N(d1)

• tells you how many shares to hold per option

Question 2

Delta of a put

Answer 2

N(d1) - 1

• always negative

Question 3

Delta

Answer 3

Measures the sensitivity of the option value to changes in the underlying asset price

Question 4

Put call parity formula

Answer 4

P = C + Xe^(-rT) - S0

Question 5

Implied volatility

Answer 5

Using current option price formula to solve for standard dev (aka volatility)

• is the markets estimate of volatility
• use black-scholes model

Question 6

N(-d1) =

Answer 6

N(-what you calculated d1 to be) = 1- table figure for d1 = FINAL ANS

Question 7

If d1/2 is negative

Answer 7

Take its absolute value