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describe how you would hedge a short position in a European (plain vanilla) call with six weeks to maturity if the spot price is 60, the strike is 65 and σ = 0.3, r=0.1. You rehedge every week. Assume that the stock will follow the following path for the end-of-week prices: 63, 59, 64, 68, 64, 67. describe how your hedging position changes every week and what trades you should put in to do so. Assume there are no transaction costs. What is the hedging cost?

Basic Finance, Finance

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  • Reference No.:- M941499

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