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Consider a European option on a non-dividend-paying stock when the stock price is $30, the...

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Accounting

Consider a European option on a non-dividend-paying stock when the stock price is $30, the exercise price is $29, continuously compounded risk-free interest rate is 5%, volatility is 25% per annum, and time to maturity is 4 months (assume 4 months equals 120 days).

- Find values of Delta for the two options.

- Using just delta, what should be the change in price of the call option if price of the underlying stock increases by $0.04?

- Briefly explain (not more than 5 sentences) why value of delta for a long call is between 0 and 1.

- Find values of Theta for the two options.

- What is the effect of theta on a long call option?

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