Question: Note: For all problems where a risk-free rate or a dividend yield is given, assume that the interest rate and the dividend yield are annual

Note: For all problems where a risk-free rate or a dividend yield is given, assume that the interest rate and the dividend yield are annual and continuously compounded rates.

The ETF SPY closed on April 23, 2021 at 416.74 and the price of the May 416 European call option on SPY was $6.27 per underlying share. Assume that the risk-free rate was 0% and the dividend yield was 1.5%.

Given that the option expires on May 19, 2021, compute the volatility implied by the price of the call option.

Estimate the price of a European put option with the same strike and maturity.

What SPY position should you hold to hedge a long position in this put option if written on 1000 shares of SPY (10 put option contracts each written on 100 shares of SPY)?

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