Exercise: Delta-Gamma Approximation for Option P&L Prerequisites: Taylor Series Problem An option has delta Δ=0.55\Delta=0.55Δ=0.55, gamma Γ=0.04\Gamma=0.04Γ=0.04, and theta Θ=−0.02\Theta=-0.02Θ=−0.02 per day. For a one-day stock move ΔS=−3\Delta S=-3ΔS=−3, compute the delta-only estimate and the delta-gamma-theta estimate using ΔV≈Δ ΔS+12Γ(ΔS)2+ΘΔt\Delta V\approx \Delta\,\Delta S+\frac{1}{2}\Gamma(\Delta S)^2+\Theta\Delta tΔV≈ΔΔS+21Γ(ΔS)2+ΘΔt. Hint Jump to the solution when you are ready.