Over the coming year, Stock X price will decrease to $80 from its current level of $100 or it will rise to $125 The one year interest rate is 2 5 Consider a one year put option on stock X with a strike price of $118 (a) To replicate this put, find the number of shares to be purchased or sold and the units of ZCB with face value of $1 to be purchased or sold (b) Use the replicating portfolio method to value this put (c) In a risk neutral world, what is the probability that stock X will rise in price (d) Use the risk neutral method to check your valuation of the put 5 Stock X price is $100 and could go up by 17 or down by 15 in each six month period A one year put option on stock X has an exercise price of $98 The interest rate is 2 5 a year (a) Find a equivalent standard deviation of returns of stock X (b) What is the value of the put

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Question: Over the coming year, Stock X price will decrease to $80 from its current level of $100 or it will rise to $125. The one-year

Over the coming year, Stock X price will decrease to $80 from its current level of $100 or it will rise to $125. The one-year interest rate is 2.5%. Consider a one-year put option on stock X with a strike price of $118.

(a) To replicate this put, find the number of shares to be purchased or sold and the units of ZCB with face value of $1 to be purchased or sold.

(b) Use the replicating-portfolio method to value this put.

(d) Use the risk-neutral method to check your valuation of the put. 5

Stock X price is $100 and could go up by 17% or down by 15% in each six-month period. A one-year put option on stock X has an exercise price of $98. The interest rate is 2.5% a year.

(a) Find a equivalent standard deviation of returns of stock X.

(b) What is the value of the put?

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