23. Suppose you are investing $100,000 into abovementioned new optimal risky portfolio only. You were sure to deliver the predicted return until 2020 came and pandemic hit. To protect your portfolio position, you have found a counterparty who is willing to write a Over-The-Counter put option for your portfolio for the next 1.5 years to come. You want to maintain total asset under management to be $95,000 or higher. In establishing this protective put position on your portfolio, what is the put premium that you need to pay to the counterparty? You assume that the Black-Scholes model holds while the predicted level of risk (i.e. standard deviation of optimal risky portfolio) has doubled, no continuous dividend is paid, and prevailing risk-free rate is 2%. Consider following return series of two stocks, A and B Stock A 2.0% 5.1% 5.5% 7.3% 6.2% 13.0% 1.2% -7.0% 5.5% -10.0% 3.2% 19.0% 1.0% 3.0% 7.1% Stock B 12.5% -9.2% 8.7% 10.4% -7.2% -9.6% -5.4% 21.0% 12.4% -15.0% 35.7% -14.2% 27.9% 16.5% 6.6% Use following information for Q. 21, 22, and 23 Consider following return series of two stocks, A and B Stock A 2.0% 5.1% 5.5% 7.3% 6.2% 13.0% 1.2% -7.0% 5.5% -10.0% 3.2% 19.0% 1.0% 3.0% 7.1% Stock B 12.5% -9.2% 8.7% 10.4% -7.2% -9.6% -5.4% 21.0% 12.4% -15.0% 35.7% -14.2% 27.9% 16.5% 6.6% 23. Suppose you are investing $100,000 into abovementioned new optimal risky portfolio only. You were sure to deliver the predicted return until 2020 came and pandemic hit. To protect your portfolio position, you have found a counterparty who is willing to write a Over-The-Counter put option for your portfolio for the next 1.5 years to come. You want to maintain total asset under management to be $95,000 or higher. In establishing this protective put position on your portfolio, what is the put premium that you need to pay to the counterparty? You assume that the Black-Scholes model holds while the predicted level of risk (i.e. standard deviation of optimal risky portfolio) has doubled, no continuous dividend is paid, and prevailing risk-free rate is 2%. Consider following return series of two stocks, A and B Stock A 2.0% 5.1% 5.5% 7.3% 6.2% 13.0% 1.2% -7.0% 5.5% -10.0% 3.2% 19.0% 1.0% 3.0% 7.1% Stock B 12.5% -9.2% 8.7% 10.4% -7.2% -9.6% -5.4% 21.0% 12.4% -15.0% 35.7% -14.2% 27.9% 16.5% 6.6% Use following information for Q. 21, 22, and 23 Consider following return series of two stocks, A and B Stock A 2.0% 5.1% 5.5% 7.3% 6.2% 13.0% 1.2% -7.0% 5.5% -10.0% 3.2% 19.0% 1.0% 3.0% 7.1% Stock B 12.5% -9.2% 8.7% 10.4% -7.2% -9.6% -5.4% 21.0% 12.4% -15.0% 35.7% -14.2% 27.9% 16.5% 6.6%
