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Exercise 1. Consider a one period binomial model, and an investment bank who sold an European put option on the ABC stock. The bank sets
Exercise 1. Consider a one period binomial model, and an investment bank who sold an European put option on the ABC stock. The bank sets up a hedging portfolio to hedge/replicate the European put option. Show that the number of shares of the ABC stock in the hedging/replicating portfolio is non positive. (1.5 points)
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