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Please explain your reasoning in detail. I want to learn, not just the answer. Suppose the initial margin m_0 = 50% and the maintenance margin
Please explain your reasoning in detail. I want to learn, not just the answer.
Suppose the initial margin m_0 = 50% and the maintenance margin m_1 = 30%. The current stock price is $100 per share, and you sell short 300 shares of the stock now. Then you will close the short position when the stock price drops to $95 or when you receive the first margin call whichever comes first. What is the probability that you can close your short position with a profit if the stock price is assumed to be a martingale? (Ignore short selling fees and interests from the proceed.) 1) 18.14% 2) 25.53% 3) 65.14% 4) 75.47% 5) 85.47%Step by Step Solution
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