Question
We will derive a two-state put option value in this problem. Data: S 0 = 270; X = 280; 1 + r = 1.1. The
We will derive a two-state put option value in this problem. Data: S0 = 270; X = 280; 1 + r = 1.1. The two possibilities for ST are 310 and 160.
a. The range of S is 150 while that of P is 120 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 270, 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
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started