Problem 1.6. (12.5 pt) You are given following information: 1. BS framework holds for stock prices. 2. S(0) = 20 3.60.01 4. O=0.18 5. r=0.1 6. 6-month call options on this stock with strike price 22 priced at 0.602109 7. XYZ Brokers sold 200 of these call option. After the transactions, the company delta hedge the position by buying shares and lending/borrowing cash. The dividend received are invested to purchase extra shares. 8. After one month, XYZ Brokers found stock price is 19 and call option is wlued at 0.216639 (same call option they sold so nou only 5 month to expire)). (a) (2.5 pErplain the rationale behind delta hedging (0) (0) XYZ brokers didn't rebalance the hedge portfolio after initial set up, cal- culate the one month profit/loss (c) (6 pt)How should XYZ brokers rebalance their hedge portfolio after I month Problem 1.6. (12.5 pt) You are given following information: 1. BS framework holds for stock prices. 2. S(0) = 20 3.60.01 4. O=0.18 5. r=0.1 6. 6-month call options on this stock with strike price 22 priced at 0.602109 7. XYZ Brokers sold 200 of these call option. After the transactions, the company delta hedge the position by buying shares and lending/borrowing cash. The dividend received are invested to purchase extra shares. 8. After one month, XYZ Brokers found stock price is 19 and call option is wlued at 0.216639 (same call option they sold so nou only 5 month to expire)). (a) (2.5 pErplain the rationale behind delta hedging (0) (0) XYZ brokers didn't rebalance the hedge portfolio after initial set up, cal- culate the one month profit/loss (c) (6 pt)How should XYZ brokers rebalance their hedge portfolio after I month