
Explanation:
The Vega of the call option = S₀ × √T × N′(d₁) = USD 79 × √(1/12) × 0.3788 = 8.6387
Thus, a 1% (0.01) increase in the volatility increases the value of the option by approximately 0.01 × 8.6387 = 0.0863
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Q.95 Consider a call option on a non-dividend paying stock where the stock price is USD 79, the risk-free rate is 5%, the time to maturity is 1 month, and N′(d₁) = 0.3788. By how much will a 1% increase in the volatility of the underlying change the value of the call option?
A
(-USD 0.0249)
B
(-0.0863)
C
(+USD 0.0249)
D
(+USD 0.0863)
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