IBM stock currently sells for 49 dollars per share. Over 12 month(s) the price will either go up by 11.5 percent or down by -7.0 percent. The risk-free rate of interest is 4.5 percent continuously compounded. If you are short one call option with strike price 51 and maturity 12 months how many shares of stock must you buy to establish a delta-neutral position?

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A: Risk-neutral probability of stock moving up is calculated using formula :   p  = er×t  -  du -…

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A: Expected Return = Risk free rate + Market risk premium * Beta

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A: A mathematical method used in finance to value options and other derivatives is called the binomial…

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A: A call option is a derivative instrument allowing the holder to purchase the associated asset at a…

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A: Current Selling Price = $60 Stock moved up by 1.15 times = 60*1.15 = 69 Stock moved down by 0.87…

Q: Find the price of a call option on the stock that has a strike price of $13

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A: Call option gives the opportunity to purchase the stock at given price but there is no obligations…

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A: Interest Rate - The percentage of the principal that the lender charges for the usage of its funds…

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Q: What is the risk-free rate of return?

A: An option is an agreement between two parties granting one the opportunity to buy or sell a security…

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A: An option refers to a derivative instrument that provides its holder the choice of buying or selling…

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A: As per Black Scholes ModelValue of call option = number of units(S*e^(q*t))*N(d1)-N(d2)*K*e^(-r*t)…

Q: Show that it is possible to replicate the stock payoff by borrowing and buying a call option.

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