Question
Alibaba Holding Group Limited had a closing price of HK$299.8 on Tuesday 3 rd Nov. After market had closed, news broke that the planned IPO
Alibaba Holding Group Limited had a closing price of HK$299.8 on Tuesday 3rd Nov. After market had closed, news broke that the planned IPO for Ant financial had been suspended. On Wednesday 4th Nov morning when HKEX opened for trading Alibaba was trading at $273, a 8.9% price drop.
Imagine you were working for a bank who had sold put options on Alibaba with strike price of HK$300, with expiration on 6th Nov. The bank sold the put options using the price suggested by Black-Scholes. They were hedging the options as if the BSM model was exactly true.
How would you recommend they change their pricing and/or hedging arrangements in the future?
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Managerial Finance
Authors: John Fred Weston, Eugene F. Brigham, John Boyle, Robin John Limmack
1st Edition
0039101975, 978-0039101978
