Multiple Choice
In a one-period binomial model,assume that the current stock price is $100,and that it will rise to $115 or fall to $80 after three months.If risk-free investment has a gross return of 1.005 per three month time-step,what is the best replicating portfolio of one hundred 101-strike three-month put options from the following options?
A) Short 60 shares of stock and long 69 units of $1 bonds.
B) Short 65 shares of stock and long 70 units of $1 bonds.
C) Short 65 shares of stock and short 69 units of $1 bonds.
D) Short 65 shares of stock and short 70 units of $1 bonds.
Correct Answer:
Verified
Correct Answer:
Verified
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