Question #31
Reading: Reading 31 Valuation of Contingent Claims
PDF File: Reading 31 Valuation of Contingent Claims.pdf
Page: 14
Status: Unattempted
Question
Which of the following is the best approximation of the gamma of an option if its delta is equal to 0.6 when the price of the underlying security is 100 and 0.7 when the price of the underlying security is 110?
Answer Choices:
A. 1.00
B. 0.01
C. 0.10
Explanation
The gamma of an option is computed as follows:
Gamma = change in delta/change in the price of the underlying = (0.7 – 0.6)/(110 – 100) =
0.01