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?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Managerial Accounting
Authors: Ray Garrison, Theresa Libby, Alan Webb
9th canadian edition
1259269477, 978-1259269479, 978-1259024900
