4. Again consider the European call option in Question 1 above (stock price = $36...
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4. Again consider the European call option in Question 1 above (stock price = $36 strike price = $35, risk-free rate = 4%, volatility = 28%, and time to maturity = 12 months). a. In Excel, simulate a hypothetical stock price path over one year using 365 daily time steps and random errors generated from a standard normal distribution. You may use VBA or random numbers from the Data Analysis drop down. b. Repeat the simulation 30 times and estimate the call options value. c. Increase the underlying price by 0.10 (using the same 30 sets of errors as above) and estimate the options delta. Remember that the delta hedge parameter value is given by (f* - f)/x. d. Increase the volatility by 0.01 (using the same 30 sets of errors as above) and estimate the options vega by comparing to the results of question 4b. e. Run a second simulation using 364 days to maturity and estimate the call options daily theta by comparing to the results of question 4b.
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