Math Question 6: Consider a non-dividend-paying stock whose…
Math Question 6: Consider a non-dividend-paying stock whose current price is $100. A market maker writes a one-year call option on this stock and sells it for $4.00. He then proceeds to delta-hedge his commitment by trading in the shares of the underlying stock. The call option’s delta is 0.75, its gamma is 0.08 and its theta is−0.02 per day. The continuously compounded, risk-free interest rate is 4%. The stock price has risen to $101 after one day. Use the delta-gamma-theta approximation to find the change in market maker’s portfolio after one day.Enter your answer in cents (NOT dollars) rounded to two decimal places.