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Using the option prices given below, give an ex of a zero cost collar and describe how it could be used to hedge a long position in the underlying asset. You may assume the underlying asset is an equity currently at $100.

Maturity Strike Calls Puts
======================================
3 Month 90 12.0 1.0
95 8.5 3.0
100 5.5 4.5
105 3.0 7.0
110 2.0 10.0

Please kindly include any assumptions, formulas, detailed steps while providing the solution.

 

Basic Finance, Finance

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  • Reference No.:- M925034

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