11. Suppose the stock price is $50, but that we plan to buy 100 shares if and...
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11. Suppose the stock price is $50, but that we plan to buy 100 shares if and when the stock reaches $45. Suppose further that σ = 0.3, r = 0.08, T − t = 1, and δ = 0.
This is a noncancellable limit order.
a. What transaction could you undertake to offset the risk of this obligation?
b. You can view this limit order as a liability. What is its value?
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Derivatives Markets Pearson New International Edition
ISBN: 978-1292021256
3rd Edition
Authors: Robert L. Mcdonald
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