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You are long 1000 six months ATM Put options on a non-dividend-paying asset with spot price $100, following a lognormal process with volatility 30%. Assume the interest rates are constant at 5%.

(a) Delta-hedge your option position. Explain what you have to do (including borrowing or lending money).

(b) On the next trading day, the asset opens at $102. What is the value of your hedged position (the option and shares position)?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92323884

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