You bought 1,000 shares of a stock that does not pay any dividends and has a current price of $468. The annual standard deviation of continuously compounded returns on the stock is 34%, and the risk-free rate is 3.5% (continuously compounded). A European put option on the stock has a strike price of $450 and expires in 0.75 years. 1) What should be the price (premium) of the put option? 2) How many put options should you trade to delta-hedge your portfolio? Enter a positive number for buying options, and a negative number for selling options.
You bought 1,000 shares of a stock that does not pay any dividends and has a current price of $468. The annual standard deviation of continuously compounded returns on the stock is 34%, and the risk-free rate is 3.5% (continuously compounded). A European put option on the stock has a strike price of $450 and expires in 0.75 years. 1) What should be the price (premium) of the put option? 2) How many put options should you trade to delta-hedge your portfolio? Enter a positive number for buying options, and a negative number for selling options.
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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You bought 1,000 shares of a stock that does not pay any dividends and has a current price of $468. The annual standard deviation of continuously compounded returns on the stock is 34%, and the risk-free rate is 3.5% (continuously compounded).
A European put option on the stock has a strike price of $450 and expires in 0.75 years.
1) What should be the price (premium) of the put option?
2) How many put options should you trade to delta-hedge your portfolio? Enter a positive number for buying options, and a negative number for selling options.
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