# Question

Suppose the stock price is $50, but that we plan to buy 100 shares if and when the stock reaches $45. Suppose further that σ = 0.3, r = 0.08, T − t = 1, and δ = 0. This is a non cancellable limit order.

a. What transaction could you undertake to offset the risk of this obligation?

b. You can view this limit order as a liability. What is its value?

a. What transaction could you undertake to offset the risk of this obligation?

b. You can view this limit order as a liability. What is its value?

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