Problems: 1. A trader at ING International has a short position in 25000 stocks. The stock price is $102. The trader decided to use PUT options on the stock for delta hedging. The exercise price is $100. The option expires in on year. Continuously compounded risk-free rate is equal to 5%. Use the web application for a CALL option with the same exercise price. Then calculate the PUT option price and its delta: X P 2 (Her; S (put-call parity) delta PUT = delta CALL l. a) How many options should be bought or sold to delta hedge the stock position? b) Calculate the total value of the hedging portfolio one week later if the stock price will be equal to $106. Compare your result with the initial value of the hedging portfolio, and with the stock portfolio value, if it was not hedged. Calculate the rates of return for the two alternatives. (Hitn: note that value of a short position is negative. Rate of return on a short position R = (Po 7 P1)/Po), because P0 is the cash ow from the short sale and P1 is the cash outow to buy back the stocks to close the short sale.) 13) Which adjustments should be made to the hedging portfolio to account for the new delta value? To accomt for one week period reduce time to expiration to 51/52 = 0,98 (use comma as a separator)