What is your initial replicating portfolio if you are replicating a put on a stock while the
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Question:
What is your initial replicating portfolio if you are replicating a put on a stock while the put's price is $8,
its delta is -0.7, the stock price is $50, and the annual (continuously compounded) risk-free interest rate is 10%. In
2 months, the stock price, put price, and delta have gone to $60, $2, and -0.1, respectively. Before and after
rebalancing at 2 months, what is your replicating portfolio (show your work and be specific for this) and what was
the replication error? What factors might account for the replication error? Explain.
Related Book For
Fundamentals of Financial Management
ISBN: 978-0324664553
Concise 6th Edition
Authors: Eugene F. Brigham, Joel F. Houston
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