Question: What is your initial replicating portfolio if you are replicating a put on a stock while the put's price is $8, its delta is -0.7,

What is your initial replicating portfolio if you are replicating a put on a stock while the put's price is $8,

its delta is -0.7, the stock price is $50, and the annual (continuously compounded) risk-free interest rate is 10%. In

2 months, the stock price, put price, and delta have gone to $60, $2, and -0.1, respectively. Before and after

rebalancing at 2 months, what is your replicating portfolio (show your work and be specific for this) and what was

the replication error? What factors might account for the replication error? Explain.

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To replicate a put option on a stock you need to create a portfolio that mimics the payoff of the put option The put option gives the holder the right to sell the stock at a specified strike price The ... View full answer

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