Investment Mathematics

Use the following information for questions 26.31 and 26.32: Assume you have purchased European put options for 100,000 shares of a nondividend paying stock and you are given the following information. (i) Price of stock = $49.16 (ii) Strike price = $50.00 (ii) Continuously compounded risk-free interest rate = 5% per annum (iv) Volatility = 20% per annum (v) There are 20 weeks remaining until maturity. 26.31. (CAS8-S05:36a] Determine the initial position you should take in the underlying stock to imple- ment a delta hedging strategy. 26.32. [CAS8-S05:36b] You now have the following information. T (weeks) Stock price di 1 $49.33 0.10 2 $49.09 0.05 You decide to readjust the delta hedging strategy on a weekly basis. Calculate the cumulative cost, including interest, of the hedge at the end of week 2. Use the following information for questions 26.31 and 26.32: Assume you have purchased European put options for 100,000 shares of a nondividend paying stock and you are given the following information. (i) Price of stock = $49.16 (ii) Strike price = $50.00 (ii) Continuously compounded risk-free interest rate = 5% per annum (iv) Volatility = 20% per annum (v) There are 20 weeks remaining until maturity. 26.31. (CAS8-S05:36a] Determine the initial position you should take in the underlying stock to imple- ment a delta hedging strategy. 26.32. [CAS8-S05:36b] You now have the following information. T (weeks) Stock price di 1 $49.33 0.10 2 $49.09 0.05 You decide to readjust the delta hedging strategy on a weekly basis. Calculate the cumulative cost, including interest, of the hedge at the end of week 2