Consider 0.5 as the volatility of the stock and use the rate r = 0.0125 as annual
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Consider 0.5 as the volatility of the stock and use the rate r = 0.0125 as annual risk-free rate. Assume you want to build a portfolio of options containing one call option with strike K1 = 420, and one put option with strike K2 = 460. Let C1(t, x) denotes the call option pricing function. Let P2(t, x) denotes the put option pricing function. Let the maturity T = 12 months. Using the adjusted closing price of 437.5 as the initial stock price.
Assume we want to build a new portfolio with 3 call options with strike K1 and n put options with strike K2. Is there a value of n that will make this new portfolio delta neutral? If yes find n.
Related Book For
Basic Business Statistics Concepts and Applications
ISBN: 978-0132168380
12th edition
Authors: Mark L. Berenson, David M. Levine, Timothy C. Krehbiel
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