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#1
11-04-2011, 03:34 PM
 BlackSwans Member Join Date: Sep 2011 Posts: 418

I was messing around with trying to come up with some problems while studying my flashcards. Here's one if anyone wants to try it.

Suppose S(t) represents the time t price of a dividend paying stock.

Let C be an at the money call option expiring at time T.
Let P be an at the money put option expiring at time T.
-Both are European options

suppose that z=r z is the cont div yield( dont have a delta button) and r is the contiously compounded risk free rate

Define Q(C) and Q(P) to be the call and put option elasticities at time 0 respectively.

In terms of N(d1), what does Q(C) - Q(P) equal?
#2
11-04-2011, 03:50 PM
 oswaldcobblepot Member SOA Join Date: Nov 2009 Location: Maryland Studying for MLC Posts: 238

I'm not sure I even interpreted this question correctly, but I'm getting:

1/(2N(d1)-1)
#3
11-04-2011, 04:33 PM
 xiaofan4 Member CAS SOA Join Date: Sep 2011 Studying for MLC College: Cornell Alumnus Favorite beer: Jack Daniels Posts: 144

Quote:
 Originally Posted by oswaldcobblepot I'm not sure I even interpreted this question correctly, but I'm getting: 1/(2N(d1)-1)
Agree
#4
11-04-2011, 04:36 PM
 BlackSwans Member Join Date: Sep 2011 Posts: 418

yea I got the same...was just messing around with some things
#5
11-05-2011, 09:34 AM
 lMax Join Date: Apr 2011 College: University of Québec Posts: 23

I would appreciate if one of you have the time to post a solution. I do not figure this out.

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