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PRMIA Exam 8002 Topic 1 Question 49 Discussion

Actual exam question for PRMIA's Mathematical Foundations of Risk Measurement :II exam
Question #: 49
Topic #: 1
[All Mathematical Foundations of Risk Measurement :II Questions]

An underlying asset price is at 100, its annual volatility is 25% and the risk free interest rate is 5%. A European call option has a strike of 85 and a maturity of 40 days. Its Black-Scholes price is 15.52. The options sensitivities are: delta = 0.98; gamma = 0.006 and vega = 1.55. What is the delta-gamma-vega approximation to the new option price when the underlying asset price changes to 105 and the volatility changes to 28%?

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Suggested Answer: D

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