Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

We will derive a two-state put option value in this problem. Data: S 0 = 240; X = 250; 1 + r = 1.1. The

We will derive a two-state put option value in this problem. Data: S0 = 240; X = 250; 1 + r = 1.1. The two possibilities for ST are 270 and 170.

a.

The range of S is 100 while that of P is 80 across the two states. What is the hedge ratio of the put? (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.)

Hedge ratio

b-1.

Form a portfolio of 4 shares of stock and 5 puts. What is the (nonrandom) payoff to this portfolio? (Round your answer to 2 decimal places.)

Nonrandom payoff $

b-2. What is the present value of the portfolio? (Round your answer to 2 decimal places.)

Present value $

c.

Given that the stock currently is selling at 240, calculate the put value. (Round your answer to 2 decimal places.)

Put value $

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

QlikView For Finance

Authors: B. Diane Blackwood

1st Edition

1784395749, 978-1784395742

More Books

Students also viewed these Finance questions