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
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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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