Data: S0 = 105; X = 112; 1 + r = 1.1. The two possibilities for...

Data: S₀ = 105; X = 112; 1 + r = 1.1. The two possibilities for S_T are 134 and 90.

a. The range of S is 44 while that of P is 22 across the two states. What is the hedge ratio of the put? (Round your answer to 2 decimal places. Negative value should be indicated by a minus sign.)

b. Form a portfolio of one share of stock and two puts. What is the (nonrandom) payoff to this portfolio?

c. What is the present value of the portfolio? (Round your answer to 2 decimal places.)

d. Given that the stock currently is selling at 105, calculate the put value. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Solutions

Expert Solution

1.
=(MAX(112-134,0)-MAX(112-90,0))/(134-90)
=-0.50

2.
=1*134+2*MAX(112-134,0)
=134

3.
=134/1.1
=121.8181818

4.
=(121.8181818-105)/2
=8.4090909

jeff jeffy answered 2 years ago

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