Shares in OMEGA are currently trading at $10. The company is about to pay a dividend of
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Shares in OMEGA are currently trading at $10. The company is about to pay a dividend of $2 a share, and the share price will then decline to $8. Over the subsequent quarter, the share price will either rise by 35% or decline by 25%. Note that the share price will go up or down only once over the coming quarter. The continuously compounded risk-free rate is 8% per annum. Consider a three-month European put option on a share of OMEGA with an exercise price of $10.50. What positions in OMEGA stock and bonds will replicate the payoff to this put and what is the cost of the replicating portfolio?
Related Book For
Finance Applications and Theory
ISBN: 978-0077861681
3rd edition
Authors: Marcia Cornett, Troy Adair
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