Assume: CLW Inc.*does not pay dividends.*The standard deviation of CLW is 40 % per year.*The continuously-compounded riskfree rate is 3%*CLW stock has a current price of $40.what portfolio would you hold today to replicate 4 months at the money call optionwith a strike of 45 on stock?A=0.3627026,B=0.2802213, andC=6.57586A=0.3627026, B=-12.48449, andC=2.02361A=-0.627026, B-12.48449, andC 2.02361A=0.3627026, B=-12.02361, andC=4.298007O

We need to create a replicating portfolio for a call option maturing in 4 months. We have to…

Answered: Assume: CLW Inc. *does not pay…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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XYZ stock has a current market price of $47.60 a share. the one-year call on XYZ stock with a strike price of $45 is priced at $3.20 whole the one-year put with a strike price of $45 is priced at $0.15. What is the risk-free rate of return?
At time t=0 Mr. Anderson sets up a riskless portfolio by taking a position in an option and in the underlying asset. Explain what Mr. Anderson needs to do at time t=1 to keep his portfolio risk neutral and why. A stock price is currently $100 and at the end of four months it will be ST . A derivative written on this stock pays off expST1/3 in four months. Given that u = 1.15, d = 0.87, and that the risk-free interest rate is 10% p.a. (continuously compounded), answer the following questions using a one-period binomial model (show all the details of your calculations and display the results with four decimal places): Calculate the value of ∆ Calculate the current value of the derivative.
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Suppose the stock price is 40 and we need to price a call option with a strike of 45 maturing in 4 months. The stock is not expected to pay dividends. The continuously-compounded riskfree rate is 3%/year, the mean return on the stock is 7%/year, and the standard deviation of the stock return is 40%/year? Solve it in excel and share the formula sheet.

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