FIN4750 Options Department of Economics and Finance

Baruch College

Spring 2024 FIN 4750

FINAL (REAL) Exam

Name ___________________________________
(please print)

ID Number ___________________________________

Signature ___________________________________

Session T TH___________ Sat____________

1. The exam is closed book and closed notes. You can bring in one page, double-sided, 8×11 formula sheet.

2. You can (and probably have to) use a calculator and a computer.

3. You have a total of 120 minutes for the exam.

4. The whole exam has a total of 60 points. It will count 30% for your final course grade.

5. Do not separate the exam book. Turn in the entire exam at the end.

6. Budgeting your time efficiently.

7. Good luck.

SHOW DETAILED STEP BY STEP WORK IN ORDER TO RECEIVE CREDITS FOR THE ANSWER

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Q1. Option Pricing Under LOGNORMAL Distribution

Underlying current at $5000 with annual return volatility of 12%. There are 21 days b/f expiration. Riskfree rate is 5.6%.

Consider a PUT option with strike at 5250.

Q1a. What is the probability that the PUT will expire ITM (3 point)?

Q1b. What is the average price of the underlying when PUT expires ITM (3 points)?

Q1c. What is the average payment for the PUT when it expires ITM at expiration? (3 points)

Q1d. How much should the PUT be priced at today? (3 points)?

Q1e. How much of the option price is time value and how much is intrinsic value? (3 points)

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Q2. Underlying follows lognormal distribution and is current at $5000. All option in this question has 63 days to go before expiration.
Riskfree rate is 5.6% and annual vol is 20% for all legs of the options.

You long 100x PUT Butterfly spreads:

You long 100 PUTs at strike of 5000;

You short 200 PUTs at strike of 4750;
You long 100 PUTs at strike of 4500.

Q2a. What is the delta for each contract as well as total delta for your entire spread position? (4 points)

Q2b. What are the gammas for each contract as well as total gammas for the spread position? (4 points)

Q2c. What is the one-day theta value of your position? (4 points)

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Q2d. If the stock moves up $100 in a single day, what is your PnL from i. delta; ii gamma; and iii theta, as well as the total PnL? (4
points)

Q2e. If the stock moves down $250 in a single day, what is your PnL from i. delta; ii gamma; and iii theta, as well as the total PnL? (4
points)

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Q3. Underlying at 5000 with rf=5.6%.

You are examining the following put diagonal calendar spread positions:

LONG 100 puts at strike of 4750 with 30 DTEs. IV for the put is 18% annually.
SHORT 100 puts at strike of 4800 with 20 DTEs. IV for the put is 16% annually.

Q3a. Calculate delta for each leg as well as for the overall position (3 points)

Q3b. Calculate gamma for each leg as well as for the overall position (3 points)

Q3c. Calculate one day theta for each contract as well as for the overall position (3 points)

Q3d. Calculate vega value for each leg as well as for the overall position (3 points)

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Q3e. Market rallied by $100 from $5000 to $5100 in a single day, what is your PnL from delta, gamma, and theta respectively if IV
did not change for the puts (3 points)?

Q3f. Market dropped by $200 from 5000 to 4800 in one day. What is your PnL from delta, gamma, and theta respectively if IV did
not change for the puts (3 points)?

Q3g. For Q3f, with the $200 selloff, if IV for 30 DTE strike PUT IV goes up from 18% to 20%, and IV for 20 DTE PUT goes up from 16%
to 19%, what is your vega PnL as well as total PnL (3 points)?

Q3h. What is the new position delta after the move in Q3g? How do you use underlying to flatten the position delta? (4 points)
(Hint: easiest way to do this is update all the inputs – underlying, IV, and DTE – and recalculate delta for each contract and then
aggregate to position level. DTE goes down from 30 to 29 for the long leg and from 20 to 19 for the short leg)

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