Calculate the BSM value of the call and put option for the prediction day.

Words: 242
Pages: 1
Subject: Uncategorized

For a period of one calendar month in 2022 (any month) record daily data on an market index of your choice for which you can obtain the data on the corresponding European call and put options in the American market. Remember that stock options are typically with American type of exercise while market indices are with European type. Predict the stock price for the next business day using simple linear regression with the business day as the independent variable. Calculate the BSM value of the call and put option for the prediction day. Find delta, gamma, vega, rho, and theta for each option. Interpret the meaning of delta, gamma, vega/100, rho, and theta for each option. Assume a company sold 100,000 call option contracts on the first business day in your chosen period. For the prediction day perform delta-, vega- and gamma-hedging simultaneously (only once). Specify the operations with the stock and options that should follow and explain the underlying reasoning for the required operations based on the greeks you found.

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