Stock A is trading for $150. Consider an option that allows you to buy the stock for $150. What type of option is it, and in which state is it at? a) If the stock can only go either up to $190 or down to $130 in the six months before expiry, what is the payoff of the option? b) At a 4% semi-annual interest rate, calculate the delta of the option . c) How much do you have to borrow / lend to replicate the payoff of the option? d) What is the value of the option using replication? e) What is the value of the option using risk neutral probabilities?

Answer rating: 100% (QA)

a The option described is a European call option which allows buying the stock at ... View the full answer