19) Malmentier SA stock is currently priced at $90, and it does not pay dividends. The...

19) Malmentier SA stock is currently priced at $90, and it does not pay dividends. The instantaneous risk-free rate of return is 6%. The instantaneous standard deviation of Malmentier SA stock is 30%. You want to purchase a put option on this stock with an exercise price of $95 and an expiration date 30 days from now. According to the Black-Scholes OPM, you should hold ____ shares of stock per 100 put options to hedge your risk.

31
35
70
75

Expert Solution

Delta of call is N(d1)=0.2986
Delta of put=N(d1)-1=0.2986-1=-0.7014

You should hold -Delta*Number of puts=-(-0.7014*100)=70 shares

jeff jeffy answered 1 year ago

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