Consider a Gap Put (see Section 14.5 in text) that pays Assume So = 100, sigma =

Question

Consider a Gap Put (see Section 14.5 in text) that pays Assume So = 100, sigma = 0.3, delta = 0.06, 6 = 0.02 and T = 1. We use a Black-Scholes model, so that S_t is log-normal. Using Monte Carlo simulation with at least 100 simulations of St, find the approximate price and Delta of this Gap Put today (using a finite-difference approximation for Delta like in Problem 3 above). Compare to the exact answer given by the formula (14.15) in textbook. [(14.15) gives the formula for Gap Call, but based on it, you should be able to derive the Gap Put]

Explanation / Answer

By using the given details , we find pricing and delta values for gap options

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