What is your initial replicating portfolio if you are replicating a put on a stock...
90.2K
Verified Solution
Link Copied!
Question
Accounting
What is your initial replicating portfolio if you are replicating a put on a stock while the puts price is $4, its delta is -0.4, the stock price is $40, and the annual (continuously compounded) risk-free interest rate is 10%. In 10 weeks, the stock price, put price, and delta have gone to $35, $8, and -0.8, respectively. Before and after rebalancing at 10 weeks, what is your replicating portfolio (show your work and be specific for this) and what was the replication error? What factors might account for the replication error? Explain.
Answer & Explanation
Solved by verified expert
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
