A 3 month European put option with strike price 1500, written on the Dow Jones Industrial Average Index. Suppose that the index is currently at 1450. Volatility is 10%, and interest rates are 2.5%. The firms in the index pay dividends at a continuous rate of 1.2%.
Suppose you had written the DJIA Index option from the previous question. You now need to hedge the option, and in order to do so, have decided to calculate Delta (?), Gamma (Γ) and Vega (V). 1. Calculate the three quantities using the finite difference technique, using δ of 0.0001. Hint: This may be done quite quickly in excel.