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A financial institution holds 100,000 shares in ABC plc and is considering buying some Call options to hedge their investment. The premium of Call options
A financial institution holds 100,000 shares in ABC plc and is considering buying some Call options to hedge their investment. The premium of Call options is 2. The manage of financial institution requires European Call options with an exercise price of 100 for exercise in two years time.
- Calculate the buyer's change in wealth (total value) if she buys 100,000 call options to hedge her portfolio and the share price in two years time is
- 120 per share or
- 90 per share.
- Calculate the seller's change in wealth (total value) if she sells 100,000 call options in two years time is
- 120 per share or
- 90 per share.
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