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Let the standard deviation of the continuously compounded return on the stock be 21 percent. Ignore dividends. Answer the following:

a. What is the theoretical fair value of the October 165 call? Calculate this answer by hand and then recalculate it using BSMbin8e.xls.

b. Based on your answer in part a, recommend a riskless strategy.

c. If the stock price decreases by $1, how will the option position offset the loss on the stock?

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Basic Finance, Finance

Category:- Basic Finance
Reference No.:- M92045810

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