78.9k views
0 votes
The current stock price of Alcoco is $40, and the stock does not pay dividends. The instantaneous risk-free rate of return is 7%. The instantaneous standard deviation of Alcoco's stock is 25%. You want to purchase a put option on this stock with an exercise price of $45 and an expiration date 30 days from now. According to the Black-Scholes OPM, you should hold __________ shares of stock per 100 put options to hedge your risk. Assume 365 days in a year

a) 59
b) 99
c) 55
d) 94

User Capricorn
by
5.9k points

1 Answer

4 votes
The answer would be 55
User Jim Cote
by
4.3k points