Suppose the stock price today is $50, in year time the stock price goes up to $77.65 and goes down to $48.47, dollar rate of return in one year is 1.0513.

 i. Set up a perfect hedge and compute the put option's value using the synthetic approach. Let the put have the same strike price K =$65. 

 ii. What is the hedge ratio? What does it signify?

Answer rating: 100% (QA)

i Setting up a perfect hedge and computing the put options value 1 Calculate the riskneutral stock p... View the full answer