On September 25, 2008 a client asks you the price of a call option with maturity November
Question:
(a) What is the price of the option?
(b) You sold the option, but you do not want to keep the position naked. So, you want to hedge using the STRIPS maturing on November 15, 2015 itself. Use the Vasicek model to determine the appropriate hedge ratio.
(c) Set up the replicating portfolio. Use simulations to check that the replicating portfolio replicates (see Subsection 16.4.1). Obtain a figure similar to 16.4. Strike Price
In finance, the strike price of an option is the fixed price at which the owner of the option can buy, or sell, the underlying security or commodity. Maturity
Maturity is the date on which the life of a transaction or financial instrument ends, after which it must either be renewed, or it will cease to exist. The term is commonly used for deposits, foreign exchange spot, and forward transactions, interest... Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...
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a The price of the option is Call x 100 1323 b In order t...View the full answer
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Related Book For 
Fixed Income Securities Valuation Risk and Risk Management
ISBN: 978-0470109106
1st edition
Authors: Pietro Veronesi
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