If while valuing a put option using a binomial tree you find a hedge ratio=D3/5 is necessary, what does this mean should be in our portfolio to have a riskless gain in either state of the world? O It means that you should buy 3 stocks and buy 5 calls O It means you should buy 3 stocks and buy 5 puts O It means that you should buy 3 stocks and short 5 calls O It means you should buy 3 stocks and short 5 puts

If while valuing a put option using a binomial tree you find a hedge ratio=D3/5 is necessary, what does this mean should be in our portfolio to have a riskless gain in either state of the world? O It means that you should buy 3 stocks and buy 5 calls O It means you should buy 3 stocks and buy 5 puts O It means that you should buy 3 stocks and short 5 calls O It means you should buy 3 stocks and short 5 puts

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

See similar textbooks

Similar questions

ou own a portfolio equally invested in a risk-free asset and two stocks (If one of the stocks has a beta of 1.41 and the total portfolio is equally as risky as the market, what must the beta be for the other stock in your portfolio? ( Hint: Remember that the market has a Beta = 1; also remember that equally invested means that each asset has the same weight - since there are 3 assets, each asset's weight is 1/3 or 0.3333. Use 0.333333, and not only 0.33, sorry, calculation is sensitive to it). Enter the answer with 4 decimals (e.g. 1.1234)
Consider a capital market with two securities. The payoffs of these securities in the two equally likely states of the world are given in the table below. Payoff Price Security A в State 1 State 2 PA = 2 Pg = 3 4 2 3 4 a) Discuss the concepts of complete capital markets, pure (Arrow-Debreu) securities, and pure factor portfolios. Establish whether the capital market in this case is complete and determine the prices of the pure securities by arbitrage.
By looking at the sensivities of your portfolio to ds = -$2 and So = -1%, you decide to hedge delta, gamma and Vega risk of your portfolio with the underlying stock and two different options on the same asset with below data. Calculate the units of stock you need to trade to hedge away all delta, gamma and Vega risks of your portfolio.(Note that here you have to calculate the units of stock, Option A and Option B, but you will only submit the units of stock.) Variable Option A Option B Delta (A) -0.5 0.2 Gamma (T) 0.2 0.1 Vega (v) 8
how much of your capital (what weight) would you invest in stock A to maximize your portfolio's expected return per unit risk (maximize the Sharpe Ratio)?
need correct and urgent
i need the answer quickly
If an investor that owns a portfolio with 3 stocks increases their portfolio to 30 stocks, which of the following is MOST LIKELY to happen? Select one: a. risk would increase b. the Sharpe ratio would increase c. return would decrease d. Sharpe would decrease
this is one question with two parts, could you have it answered please
4. What follows are several portfolios; each is denoted by the term Port. Graph the profit curve at t = T for each of them. Determine the strengths and weaknesses of each portfolio. Namely, explain what a reasonable investor must be expecting to adopt each portfolio. In this listing, CE denotes a Call with strike price E, -CE represents going short on a Call-the Call was sold, PE is a put, -PE is going short on a put, and the numbers E indicate the strike price. (a) A "Long Call" is Port = CE- (b) A "Short Call" is Port = -CE. (c) A "Long Put" is Port = PE. (d) A "Short Put" is Port = - PE. (e) A "Long Straddle" is Port = PE + C£; namely, buy both a Put and Call with the same strike price. (f) A "Short Straddle" is Port = -P - C. (g) A "Long Strangle" is Port = P£₁ +C£₂; namely, it is a purchase of a put at strike price E₁, which is less than the strike price of a Call at E2 (h) a "Short butterfly" is Port = −CE₁ +2CE₂ - CE3 where E₁ < E₂ < E3. (i) A "Long butterfly" is Port = CE₁…
You own a portfolio equally invested in a risk-free asset and two stocks. One of the stocks has a beta of 1.16 and the total portfolio is equally as risky as the market. What must the beta be for the other stock in your portfolio? Note: Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16. Beta
Which statement below is incorrect? Select one: A. The four "V" features of big data include volume, variety, value, and velocity. B. When the price of the underlying asset increases, the call option price will increase while the put option price will decrease. C. The Fama-French High-Minus-Low portfolio (HML) is a strategy that attempts to buy stocks with high prices and sell stocks with low prices. D. The passive mutual funds charge a lower administration fee than the active mutual funds.
Finance (a) Consider a portfolio with a Delta of 100, a Gamma of -20, and a Vega of -10. There are two traded options available: Traded options 1 Traded options 2 Delta 0.2 -0.1 Gamma Vega 0.01 0.05 0.5 0.3 What position in the traded option and/or underlying stock would make the portfolio Gamma and Vega neutral? (Required: Show your work step by step)

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

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

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS