S3 Q13 Today is June 4, 2020. Stock X is selling at $150 per share. The stock has a dividend yield of 5% per year. There is a call option with an August 18, 2020 expiration date and an exercise price of $145, with an implied volatility of 20%. The annual risk-free rate is 1%, compounded continuously. Shares and options can only be bought and sold in whole numbers. Requires use of normal probability table. Calculate the value of the delta-dedged portfolio on June 5, 2020 before rebalancing.
S3 Q13 Today is June 4, 2020. Stock X is selling at $150 per share. The stock has a dividend yield of 5% per year. There is a call option with an August 18, 2020 expiration date and an exercise price of $145, with an implied volatility of 20%. The annual risk-free rate is 1%, compounded continuously. Shares and options can only be bought and sold in whole numbers. Requires use of normal probability table. Calculate the value of the delta-dedged portfolio on June 5, 2020 before rebalancing.
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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S3 Q13
Today is June 4, 2020. Stock X is selling at $150 per share. The stock has a dividend yield of 5% per year. There is a call option with an August 18, 2020 expiration date and an exercise price of $145, with an implied volatility of 20%. The annual risk-free rate is 1%, compounded continuously. Shares and options can only be bought and sold in whole numbers.
Requires use of normal probability table.
Calculate the value of the delta-dedged portfolio on June 5, 2020 before rebalancing.
Transcribed Image Text:Normal Probability Table
IZ
0.02
0.04
0.00
0.0 0.5000 0.5040 0.5080 0.5120 0.5160
0.1 0.5398 0.5438 0.5478 0.5517 0.5557
0.2 0.5793 0.5832 0.5871 0.5910 0.5948
0.3 0.6179 0.6217 0.6255 0.6293 0.6331
0.4 0.6554 0.6591 0.6628 0.6664 0.6700
0.5 0.6915 0.6950 0.6985 o.7019 0.7054
0.6 0.7257 0.7291 0.7324 0.7357 0.7389
0.7 0.7580 0.7611 0.7642 0.7673 0.7704
0.8 0.7881 0.7910 0.7939 0.7967 0.7995
0.9 0.8159 0.8186 0.8212 0.8238 0.8264
0.8413 0.8438 0.8461 0.8485 0.8508
1.1 0.8643 0.8665 0.8686 0.8708 0.8729
1.2 0.8849 0.8869 0.8888 0.8907 0.8925
1.3 0.9032 0.9049 0.9066 0.9082 0.9099
1.4 0.9192 0.9207 0.9222 0.9236 0.9251
1.5 0.9332 0.9345 0.9357 0.9370 0.9382
1.6 0.9452
0.01
0.03
0.05
0.5199
0.06
0.5239
0.5596 0.5636
0.6026
0.07
0.5279
0.5675 0.5714 0.5753
0.6064 0.6103 0.6141
0.6443 0.6480 0.6517
0.6808 0.6844 0.6879
0.7157 0.7190 0.7224
0.7486 0.7517 0.7549
0.7794 0.7823 0.7852
0.8078 0.8106 0.8133
0.8340 0.8365 0.8389
0.8577 0.8599 0.8621
0.8790 0.8810
0.8980 0.8997 0.9015
0.9147 0.9162 0.9177
0.9292 0.9306 0.9319
0.9418 0.9429 0.9441
0.9525 0.9535
0.9616 0.9625
0.9693 0.9699 0.9706
0.9756 0.9761
0.9808 0.9812 0.9817
0.08
0.09
0.5319 0.5359
0.5987
0.6368
0.6736
0.6406
0.6772
0.7088 0.7123
0.7422 0.7454
0.7734 0.7764
0.8051
0.8315
0.8554
0.8770
0.8944 0.8962
0.9131
0.9265 0.9279
0.9406
0.9515
0.9608
0.9686
0.9744 0.9750
0.9798 0.9803
0.8023
0.8289
0.8531
0.8749
0.8830
0.9115
0.9394
0.9505
0.9599
0.9678
l0.9463
0.9474 0.9484 0.9495
0.9545
1.7 0.9554 0.9564 0.9573 o.9582 0.9591
1.8 0.9641 0.9649 0.9656 0.9664 0.9671
1.9 0.9713 0.9719 0.9726 0.9732 0.9738
0.9772 0.9778 0.9783 0.9788 0.9793
2.1 0.9821 0.9826 0.9830 0.9834 0.9838
2.2 0.9861 0.9864
2.3 0.9893
2.4 0.9918 0.9920 0.9922 0.9925 0.9927
2.5 0.9938 0.9940 0.9941 0.9943 0.9945
2.6 0.9953 0.9955 0.9956 0.9957 0.9959
2.7 0.9965 0.9966 0.9967 0.9968
2.8 0.9974 0.9975 0.9976 0.9977 0.9977
2.9 0.9981 0.9982 0.9982 o.9983 0.9984
0.9987 0.9987 0.9987 0.9988 0.9988
0.9633
0.9767
12
0.9842
0.9846 0.9850 0.9854 0.9857
0.9868 0.9871 0.9875
0.9896 0.9898 0.9901 0.9904
0.9878 0.9881
0.9909
0.9931
0.9946 0.9948
0.9961
0.9970 0.9971
0.9979
10.9985
0.9989
0.9992
10.9994
0.9884 0.9887 0.9890
0.9911
0.9932 0.9934
0.9949
0.9962
0.9972 0.9973 0.9974
0.9979
0.9985
0.9989
0.9992
0.9995
0.9916
0.9936
0.9951 0.9952
0.9963 0.9964
0.9906
0.9929
0.9913
0.9960
l0.9969
0.9978
0.9984
0.9989
0.9992
0.9980
0.9986
0.9990
0.9993
0.9995
0.9996 0.9996 0.9996
0.9997
0.9981
0.9986
3
3.1 0.9990 0.9991 0.9991
3.2 0.9993 0.9993 0.9994 0.9994 0.9994
3.3 0.9995 0.9995 0.9995
3.4 0.9997 0.9997 0.9997
3.5 0.9998
3.6 0.9998 0.9998 0.9999 0.9999 0.9999
3.7 0.9999 0.9999 0.9999 0.9999 0.9999
3.8 0.9999
3.9 1.0000
4
0.9990
0.9991 0.9992
0.9993
0.9995
0.9997
0.9998
0.9994
0.9996
0.9997
0.9998
0.9999
0.9999
0.9999
1.0000
1.0000
0.9996 0.9996
0.9997 0.9997
0.9998 0.9998
0.9997
0.9998
0.9999
0.9999
0.9999
1.0000
1.0000
0.9997
0.9998 0.9998 0.9998
0.9999 0.9999 0.9999
0.9999
0.9999 0.9999
0.9998 0.9998
0.9999
0.9999
1.0000
1.0000
0.9999
0.9999
1.0000
l0.9999
1.0000
1.0000
0.9999
1.0000
1.0000
0.9999
1.0000
1.0000
1.0000
1.0000 1.0000
1.0000
1.0000
1.0000
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