ps5 - Using the delta hedging, risk neutral valuation, and...

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1 B AYLOR U NIVERSITY H ANKAMER S CHOOL OF B USINESS D EPARTMENT OF F INANCE , I NSURANCE R EAL E STATE Dr. Garven Name ________________ Problem Set #5 (extra credit) 1. The price of a share of ABC stock is currently $50. It is known that at the end of 1 year, the ABC share price will be either $100 or $25. The riskless interest rate is 4% per year.
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Unformatted text preview: Using the delta hedging, risk neutral valuation, and replicating portfolio approaches, calculate the price of a European call option on ABC stock with an exercise price of $40 that expires 1 year from today. 2. Redo the first problem in the case of an otherwise identical put option....
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This document was uploaded on 03/08/2010.

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