You sold a put option and want to start delta hedging for the next two periods....

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You sold a put option and want to start delta hedging for the next two periods. Your hedge instrument is the underlying stock. Hedging is done annually. The initial stock price and the values in years 1 and 2 are given below. Current 1 Year 2 Year 130 80 Stock Price 100 Put option • 5-year maturity • 20% stock volatility • 3% Risk-free rate • 100 Strike No dividends • • Annual hedge frequency • 5% real world drift What are the number of shares held at time 0 and at year 1 to hedge the sold put option? What is the gain or loss in year one and year 2 on the shares and the sold put option? Ignore financing costs. What is the 99th percentile (lower stock price) VaR for the sold put option over a one year horizon? You sold a put option and want to start delta hedging for the next two periods. Your hedge instrument is the underlying stock. Hedging is done annually. The initial stock price and the values in years 1 and 2 are given below. Current 1 Year 2 Year 130 80 Stock Price 100 Put option • 5-year maturity • 20% stock volatility • 3% Risk-free rate • 100 Strike No dividends • • Annual hedge frequency • 5% real world drift What are the number of shares held at time 0 and at year 1 to hedge the sold put option? What is the gain or loss in year one and year 2 on the shares and the sold put option? Ignore financing costs. What is the 99th percentile (lower stock price) VaR for the sold put option over a one year horizon?