Suppose the stock price is $50, but that we plan to buy 100 shares if and when

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Suppose the stock price is $50, but that we plan to buy 100 shares if and when the stock reaches $45. Suppose further that σ = 0.3, r = 0.08, T − t = 1, and δ = 0. This is a non cancellable limit order.
a. What transaction could you undertake to offset the risk of this obligation?
b. You can view this limit order as a liability. What is its value?
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Derivatives Markets

ISBN: 9789332536746

3rd Edition

Authors: Robert McDonald

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