Consider a 1 year European call option with a strike price of $120. The spot stock price is $110, its volatility is 30% and it pays a 2% annual dividend yield, continuously compounded. The risk-free rate is 4%.
(a) What is the call delta? If the short party decides to delta-hedge the call, what would be the total cash flow (premium and hedge)?
(b) Without using either the Black-Scholes-Merton model or the binomial trees, what are the corresponding 1 year European put price and the put delta?