Question: On September 25, 2008 a client asks you the price of a call option with maturity November 15, 2010, written on the STRIP maturing on

On September 25, 2008 a client asks you the price of a call option with November 15, 2010, written on the STRIP maturing on November 15, 2015, and with 82.
(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 Use simulations to check that the replicating replicates (see Subsection 16.4.1). Obtain a figure similar to 16.4.

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