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Business, 06.05.2020 05:32 newben

Assume the Black-Scholes framework for option pricing holds. You are considering buying a stock option. You are given the following information at time t=0: The stock price S(t=0) is $100. The option price is $5.80. The option delta is –0.422. The option theta measured in dollars per year is –$48.253 per year. You decide to buy the option at time t=0 using the www. interactivebrokers electronic trading application. Two days pass and you find that the option price increases to $6.90 while the implied volatility remains constant and the stock price declines to S(t=2) which is less than S(t=0). Using the Delta-Gamma-Theta approximation, compute an estimate for the new stock price S(t=2).

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