Today's price of Apple (AAPL) is $200 per share. AAPL does not pay dividends. One year from today, there are two possible states. In the u state, the economy is booming and the price of AAPL is $400. In the d state, the economy is suffering and the price of AAPL is $100. The c.c. risk-free interest rate is zero percent. You are interested in a call option on AAPL with a strike of $250 and a maturity of one year. Assume there is no arbitrage. How many shares of stock are in the replicating portfolio - i.e., what is Delta?

How many bonds are in the replicating portfolio (i.e., what is Beta)?  What is the price of the call option? 

Today's price of Microsoft (MSFT) is $100 per share. MSFT does not pay dividends. One year from today, there are two possible states. In the u state, the economy booming and the price of MSFT is $150. In the d state, the economy is suffering and the price of MSFT is $50. The c.c. risk-free interest rate is zero percent. You are interested in a put option on MSFT with a strike of $100 and a maturity of one year. Assume there is no arbitrage.

How many shares of stock are in the replicating portfolio - i.e., what is Delta?

How many bonds are in the replicating portfolio - i.e., what is Beta?  What is the price of the put option?

Answer rating: 100% (QA)

To determine the number of shares of stock in the replicating portfolio Delta for the call option on AAPL and the put option on MSFT we can use the co... View the full answer