We will derive a two-state put option value in this problem. Data: S = $130; X = $140; 1+r=1.10. The two possibilities for ST are $170 and $95. Required: a. The range of S is $75 while that of P is $45 across the two states. What is the hedge ratio of the put? (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.) Hedge ratio es b. Form a portfolio of three shares of stock and five puts. What is the (nonrandom) payoff to this portfolio? (Round your answer to 2 decimal places.) Nonrandom payoff c. What is the present value of the portfolio? (Round your answer to 2 decimal places.) Present value
We will derive a two-state put option value in this problem. Data: S = $130; X = $140; 1+r=1.10. The two possibilities for ST are $170 and $95. Required: a. The range of S is $75 while that of P is $45 across the two states. What is the hedge ratio of the put? (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.) Hedge ratio es b. Form a portfolio of three shares of stock and five puts. What is the (nonrandom) payoff to this portfolio? (Round your answer to 2 decimal places.) Nonrandom payoff c. What is the present value of the portfolio? (Round your answer to 2 decimal places.) Present value
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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Question
![We will derive a two-state put option value in this problem. Data: S = $130; X = $140; 1+r=1.10. The two possibilities for ST are $170
and $95.
Required:
a. The range of S is $75 while that of P is $45 across the two states. What is the hedge ratio of the put? (Negative value should be
indicated by a minus sign. Round your answer to 2 decimal places.)
Hedge ratio
es
b. Form a portfolio of three shares of stock and five puts. What is the (nonrandom) payoff to this portfolio? (Round your answer to 2
decimal places.)
Nonrandom payoff
c. What is the present value of the portfolio? (Round your answer to 2 decimal places.)
Present value](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F453328ff-1fb5-4f17-aafb-2444f525edbd%2F8c877823-5cb5-436b-a187-f61da282cb4c%2Fb44tap_processed.jpeg&w=3840&q=75)
Transcribed Image Text:We will derive a two-state put option value in this problem. Data: S = $130; X = $140; 1+r=1.10. The two possibilities for ST are $170
and $95.
Required:
a. The range of S is $75 while that of P is $45 across the two states. What is the hedge ratio of the put? (Negative value should be
indicated by a minus sign. Round your answer to 2 decimal places.)
Hedge ratio
es
b. Form a portfolio of three shares of stock and five puts. What is the (nonrandom) payoff to this portfolio? (Round your answer to 2
decimal places.)
Nonrandom payoff
c. What is the present value of the portfolio? (Round your answer to 2 decimal places.)
Present value
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