You short sold 100 shares of stock X on November 1, 3016 and closed your position on

Question:

You short sold 100 shares of stock X on November 1, 3016 and closed your position on November 1, 3018. You are given:

(i) Stock X pays dividends continuously at a rate proportional to its price. The dividend yield is 4%.

(ii) The continuously compounded risk-free interest rate is 5%.

(iii) The commission rate (for purchase or sale) is 2% of the transaction amount.

(iv) The following bid and ask prices of stock X (per share) observed at various time points:

Date November 1, 3016 November 1, 3017 November 1, 3018 Bid Price 95.0 98.0 100.0 Ask Price 95.5 98.5 100.5

Calculate your profit measured as of November 1, 3018.

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Question Posted: Nov 22, 2023 08:17 AM

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You short sold 100 shares of stock X on November 1, 3016 and closed your position on

Question:

Date November 1, 3016 November 1, 3017 November 1, 3018 Bid Price 95.0 98.0 100.0 Ask Price 95.5 98.5 100.5

Step by Step Answer:

There are two cash flows between November 1 3016 and November 1 3018 On November 1 3016 you short s...View the full answer

Derivative Pricing

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