Problem 21-9 Data: $S_0 = 107$; $X = 110$; $1 + r = 1.12$. The two possibilities for $S_T$ are 155 and 95. a. The range of $S$ is 60 while that of $P$ is 15 across the two states. What is the hedge ratio of the put? (Round your answer to 2 decimal places. Negative value should be indicated by a minus sign.) Hedge ratio b. Form a portfolio of one share of stock and four puts. What is the (nonrandom) payoff to this portfolio? Nonrandom payoff c. What is the present value of the portfolio? (Round your answer to 2 decimal places.) Present value d. Given that the stock currently is selling at 107, calculate the put value. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Put value
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The hedge ratio is calculated by taking the change in the value of the put divided by the change in the value of the stock. In this case, the change in the value of the put is 15 (the range of P) and the change in the value of the stock is 60 (the range of S). So Show more…
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