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

Solutions

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

Next > < Previous

Related Solutions

a. Malmentier SA stock is currently priced at $65, and it does not pay dividends. The...

a. Malmentier SA stock is currently priced at $65, and it does not pay dividends. The instantaneous risk-free rate of return is 7%. 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 $70 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. b. The binomial...

Malmentier SA stock is currently priced at $55, and it does not pay dividends. The instantaneous...

Malmentier SA stock is currently priced at $55, and it does not pay dividends. The instantaneous risk-free rate of return is 5%. The instantaneous standard deviation of Malmentier SA stock is 40%. You want to purchase a put option on this stock with an exercise price of $60 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. 36 40 75 80

A stock currently sells for $80, and it will pay no dividends in the future. Consider...

A stock currently sells for $80, and it will pay no dividends in the future. Consider a 2-year forward contract on this stock. The forward price is $90. The risk-free rate is 3% per annum. Is there an arbitrage? If so, show the arbitrage strategy using a table listing asset positions and cash flows.

The current stock price of Alcoa is $115, and the stock does not pay dividends. The...

The current stock price of Alcoa is $115, and the stock does not pay dividends. The instantaneous risk-free rate of return is 6%. The instantaneous standard deviation of Alcoa's stock is 35%. You want to purchase a put option on this stock with an exercise price of $120 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.

Lincoln Motors does not pay dividends currently but plans to pay its first dividend of $1.00...

Lincoln Motors does not pay dividends currently but plans to pay its first dividend of $1.00 three years from today (D3). The dividend will grow at 10% in years 4 and 5 and after year 5 will grow at 3% forever. Find the price per share of Lincoln Motors if the required rate of return is 8%.

Rochelle, Rochelle Partners stock currently trades at $23.27. It will pay dividends for the next four...

Rochelle, Rochelle Partners stock currently trades at $23.27. It will pay dividends for the next four years of $0.75 each year. In year 5 the dividend will grow by 20%, and it will grow by an additional 20% per year compounded for the three years after that (years 6-8) as well. Starting in year 9, the dividend growth rate will settle into a steady rate of growth which you forecast to remain constant indefinitely from that point forward. Assuming your...

The current stock price of Johnson & Johnson is $178, and the stock does not pay dividends. The instantaneous risk-

The current stock price of Johnson & Johnson is $178, and the stock does not pay dividends. The instantaneous risk-free rate of return is 6%. The instantaneous standard deviation of J&J's stock is 30%. You want to purchase a put option on this stock with an exercise price of $171 and an expiration date 60 days from now. Assume 365 days in a year. With this information, you calculate the probability that a random draw from a standard normal distribution...

A stock will pay no dividends for the next 7 years. Then it will pay a...

A stock will pay no dividends for the next 7 years. Then it will pay a dividend of $9.62 growing at 4.31%. The discount rate is 11.34%. What should be the current stock price?

Q5. You are considering a call option on a stock that does not pay dividends. What...

Q5. You are considering a call option on a stock that does not pay dividends. What happens to a call option value if this stock starts paying dividends? Q6. A put option and a call option have the same maturity and strike price. If they also have the same price, which one is in-the-money?

A trader observes that a) A put on stock X which does not pay dividends with strike price

A trader observes that a) A put on stock X which does not pay dividends with strike price$20 and exercisable in one year trades at $3 and b) A call on the same stock with the same strikeprice and also exercisable in one year trades at $25. If the stock trades today at $30/share and therisk-free rate is 10%, design a profitable arbitrage strategy for the trader.

Subjects