Part A (5 marks): i. When valuing European Vanilla Options in the Black-Scholes-Merton Model, there is one source of uncertainty.

| April 14, 2018

Part A (5 marks): i. When valuing European Vanilla Options in the Black-Scholes-Merton Model, there is one source of uncertainty. What is this uncertainty? (3 marks) Max 50 words. ii. Why does a short call position in a European vanilla option have negative delta (Δ)? (2 mark) Max 75 words  Part B (5 marks): The current price of a non-dividend paying asset is $65, the riskless interest rate is 5% p.a. continuously compounded, and the option maturity is five years. What is the lower bo … 

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