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Hedging Portfolios using derivatives

Suppose you are a financial advisor to an investor whose portfolio consists of 400 shares of Delta Cruise Inc. stock and 10 put options on the same stock. The risk free rate is 6%, time to maturity is six months, exercise price and stock price are both at $82, and the market observed put price is $4.56. The stock does not pay out any dividend. After your analysis of the Delta Cruise Inc. stock prices, you find out that the standard deviation is at 30%. Is the investor position well hedged? What is your advice to the investor?

 

Business Economics, Economics

  • Category:- Business Economics
  • Reference No.:- M928463

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