Hedging [3] The stock price can next period be either 100 or 200. The stock price today

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Hedging [3]

The stock price can next period be either 100 or 200. The stock price today is 150.

You have a put option that expires next period. The exercise price of the put option is lOOo. The price of a discount bond that matures next period is 0.8. You would like to eliminate the risk of holding the put option. What position do you need to take in the stock?

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Ali Khawaja

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