Reconsider the determination of the hedge ratio in the two-state model (Section

Question

Reconsider the determination of the hedge ratio in the two-state model (Section 16.2), where we showed that one-third share of stock would hedge one option. Assuming a stock price of $312, what would be the hedge ratio for each of the following exercise prices: $312, $286. $260. $234? (Leave no cells blank - be certain to enter "0" wherever required. Round your answers to 2 decimal places.) Imagine you are a provider of portfolio insurance. You are establishing a four-year program. The portfolio you manage is currently worth $70 million, and you promise to provide a minimum return of 0%. The equity portfolio has a standard deviation of 25% per year, and T-bills pay 6.2% per year. Assume for simplicity that the portfolio pays no dividends (or that all dividends are reinvested). What percentage of the portfolio should be placed in bills? (Input the value as a positive value. Round your answer to 2 decimal places.) What percentage of the portfolio should be placed in equity? (Input the value as a positive value.Round your answer to 2 decimal places.) Calculate the put delta and the amount held in bills if the stock portfolio falls by 3% on the first day of trading? (Input the value as a positive value. Do not round intermediate calculations. Round your answers to 2 decimal places.) Put delta % Amount held in bills $ million

Explanation / Answer

Reconsider the determination of the hedge ratio in the two-state model (Section

Related Questions

Navigate

• Browse (All)
• Browse R
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.