Consider a European put option with the following information. Time to expiration 9 months Standard deviation 25% Exercise price £110 Stock price £100 Interest rate 2% Dividends No Use the Black-Scholes model (and the put-call parity, if needed) to compute the value of this put option. Assume an investor owns 200 shares, and there is no arbitrage. What action should she take to hedge her holding using put options? Assume the stock price changes to £95 immediately after this action (i.e., hedging her holding using put options), how much will the investor have gained or lost? Explain why the position is not perfectly hedged. Critically discuss the advantages and potential drawbacks of the Black-Scholes model. Your discussion would benefit from the inclusion of real-world examples and appropriate academic references. Support your answer with calculations and/or reasons behind.
solution
Solution:
15% off for this assignment.
Our Prices Start at $11.99. As Our First Client, Use Coupon Code GET15 to claim 15% Discount This Month!!
Why US?
100% Confidentiality
Information about customers is confidential and never disclosed to third parties.
Timely Delivery
No missed deadlines – 97% of assignments are completed in time.
Original Writing
We complete all papers from scratch. You can get a plagiarism report.
Money Back
If you are convinced that our writer has not followed your requirements, feel free to ask for a refund.