Answer: $1.291

## Explanation To estimate the new option price using delta and gamma: **First-order approximation (delta only):** Price change = Delta × Underlying price change = 0.40 × $0.70 = $0.28 **Second-order approximation (delta + gamma):** Price change = (Delta × Underlying price change) + (0.5 × Gamma × (Underlying price change)²) = (0.40 × $0.70) + (0.5 × 0.03 × ($0.70)²) = $0.28 + (0.5 × 0.03 × $0.49) = $0.28 + (0.5 × 0.0147) = $0.28 + $0.00735 = $0.28735 **New estimated price:** Original price + Price change = $1.00 + $0.28735 = $1.28735 Among the options: - A: $1.287 (too low) - B: $1.291 (closest to $1.28735) - C: $1.295 (too high) Therefore, $1.291 is the closest estimate.

Author: LeetQuiz Editorial Team