The current price of a non-dividend-paying stock is $30. Over the next six months, it is expected to rise to $36 or fall to $26. Assume the risk-free rate is zero.
i) What long position in the stock is necessary to hedge a short call option when the strike price is $32? Give the number of shares purchased as a percentage of the number of options that have been sold. _ _ _ _ _ _
ii) What is the value of the call option? _ _ _ _ _ _
iii) What long position in the stock is necessary to hedge a long put option when the strike price is $32? Give the number of shares purchased as a percentage of the number of options purchased. _ _ _ _ _ _
iv) What is the value of the put option? _ _ _ _ _ _
v) What is the risk-neutral probability of the stock price moving up? _ _ _ _ _ _

Question

Quizplus · Accepted Answer

The Answer of The current price of a non-dividend-paying stock is $30. Over the next six months, it is expected to rise to $36 or fall to $26. Assume the risk-free rate is zero.
i) What long position in the stock is necessary to hedge a short call option when the strike price is $32? Give the number of shares purchased as a percentage of the number of options that have been sold. _ _ _ _ _ _
ii) What is the value of the call option? _ _ _ _ _ _
iii) What long position in the stock is necessary to hedge a long put option when the strike price is $32? Give the number of shares purchased as a percentage of the number of options purchased. _ _ _ _ _ _
iv) What is the value of the put option? _ _ _ _ _ _
v) What is the risk-neutral probability of the stock price moving up? _ _ _ _ _ _

The Current Price of a Non-Dividend-Paying Stock Is $30