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One period replicating portfolios Suppose a stock index is currently trading at 4000 (and to keep things simple, we assume it also pays no dividendsat
One period replicating portfolios
Suppose a stock index is currently trading at 4000 (and to keep things simple, we assume it also pays no dividendsat least for now!). Next period the index will either go up by 9% or down by 11%. The simple one-period risk-free rate is 1%
i. What are the replicating portfolios for the one-period calls on the index struck at K = 3800 and K = 4200?
ii. So what are these calls price?
iii. What are the replicating portfolios for the one-period puts with the same two strikes?
iv. So what are these puts price?
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