On Tuesday 3 rd November 2020 Alibaba Holding Group Limited had a closing price of 299.80 Hong Kong Dollars. After the market had closed, news broke that the planned IPO for Ant financial had been suspended. On Wednesday 4 th November at 9:30am when HKEX opened for trading Alibaba was trading at 273.00 HKD, a 8.9% price drop. Imagine you were working for a bank who had sold put options on Alibaba with a strike price of 300.00 HKD, with expiration on the 6 th of November. The bank sold the put options using the price suggested by Black-Scholes. They were hedging the option as if the BSM model was exactly true.

a) How would you recommend they change their pricing and/or hedging arrangements in the future.