Today's price of Apple (AAPL) is $200 per share. AAPL does not pay dividends. One year from
Question:
Today's price of Apple (AAPL) is $200 per share. AAPL does not pay dividends. One year from today, there are two possible states. In the u state, the economy is booming and the price of AAPL is $400. In the d state, the economy is suffering and the price of AAPL is $100. The c.c. risk-free interest rate is zero percent. You are interested in a call option on AAPL with a strike of $250 and a maturity of one year. Assume there is no arbitrage. How many shares of stock are in the replicating portfolio - i.e., what is Delta?
How many bonds are in the replicating portfolio (i.e., what is Beta)? What is the price of the call option?
Today's price of Microsoft (MSFT) is $100 per share. MSFT does not pay dividends. One year from today, there are two possible states. In the u state, the economy booming and the price of MSFT is $150. In the d state, the economy is suffering and the price of MSFT is $50. The c.c. risk-free interest rate is zero percent. You are interested in a put option on MSFT with a strike of $100 and a maturity of one year. Assume there is no arbitrage.
How many shares of stock are in the replicating portfolio - i.e., what is Delta?
How many bonds are in the replicating portfolio - i.e., what is Beta? What is the price of the put option?
An Introduction To Financial Markets A Quantitative Approach
ISBN: 9781118014776
1st Edition
Authors: Paolo Brandimarte