We will derive a two-state put option value in this problem, Ask an Expert

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We will derive a two-state put option value in this problem. Data: S0 = 290; X = 300; 1 + r = 1.1. The two possibilities for ST are 330 and 180. a. The range of S is 150 while that of P is 120 across the two states.

What is the hedge ratio of the put? (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.)

A. Hedge ratio__________

b-1. Form a portfolio of 4 shares of stock and 5 puts. What is the (nonrandom) payoff to this portfolio? (Round your answer to 2 decimal places.)

Nonrandom payoff $________________

b-2. What is the present value of the portfolio? (Round your answer to 2 decimal places.)

Present value $________________

c. Given that the stock currently is selling at 290, calculate the put value. (Round your answer to 2 decimal places.)

Put value $_____________________

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M91611081

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