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The share price of DANF Digital is $100 . Six months from now, it will be either $150 with probability of .70 or $90 with
The share price of DANF Digital is $100. Six months from now, it will be either $150 with probability of .70 or $90 with probability .30. A call option exists on the stock that can be exercised only at the end of 6 months at an exercise price of $120.
a) If you wished to establish a perfectly hedged position, what would you do on the basis of the facts just presented?
b) Under each of the two possibilities, what will be the value of your hedged position?
c) What is the expected value of option price at the end of the period?
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