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18. A trader decides to protect her portfolio with a put option. The portfolio is worth $150 million and the required put option has
18. A trader decides to protect her portfolio with a put option. The portfolio is worth $150 million and the required put option has a strike price of $145 million with maturity of 24 weeks. The volatility of the portfolio is 15% and the dividend yield on the portfolio is 3% per annum. The risk-free rate is 4%. Because the option is not available on exchanges, the trader decides to create an option by maintaining a position in the underlying portfolio with the required delta. What percentage of the original portfolio should be sold and invested at the risk-free rate: a. Initially at time zero? b. After one week, when value is $145 million? c. After two weeks when value is $148 million?
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