1. Kenneth has purchased an 1-year European put option with strike price K written on a stock. He has decided to delta-hedge his position in order to reduce the lost he may suffer from the rise of the stock price. You are given that:

   (i) The delta of the put option at the time of purchase was 0 = 0.5272. (ii) The continuously compounded risk-free interest rate is 5% per year.

   (iii) The stock pays continuous dividend at a rate of 2%. 1

Due Date: 21 April 2021, 11:59 pm

(iv) The volatility of the stock is 20%. (v) The put option is at-the-money at the end of the first week of purchase.

Suppose Kenneth re-adjusts his hedging amount in a weekly basis and he has experienced a profit of 0.266 from his portfolio at the end of the first week. Calculate the value of K.