Let A(0) = 87, A(T) = 99, S(0) = 20 dollars and S(T) = {25 with probability
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Question:
Let A(0) = 87, A(T) = 99, S(0) = 20 dollars and
S(T) =
{25 with probability p,
22 with probability 1 −p,
for some 0 < p < 1. For a portfolio with x = 12 shares of a stock
and y = 10 bonds, calculate V (0), V (T), and KV.
(b) Given the same bond and stock prices as in part (a) above, find a
portfolio whose value at time T is
V (T) =
{1,339 if the stock goes up,
1,309 if the stock goes down.
What is the value of this portfolio at time 0?
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