The current stock price of Alcoa is $110, and the stock does not pay dividends. The instantaneous risk-free rate of return is 5%. The instantaneous standard deviation of Alcoco's stock is 30%. You want to purchase a put option on this stock with an exercise price of $115 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.
$2.00 for three shots.
reducing the scale of the market for a new product.
Explanation:
d_1 = (ln(S/K) + (r + (s^2)/2)t)/(s√(t))
d_2 = d_1 - s√(t))
where S= current stock price
K = option strike price
t = time to maturity
s = volatility
r = risk free rate
c = call premium
d_1 = (ln(70/75) + (0.06 + (0.40^2)/2)× 0.083)/0.40√(.0833)
= -0.49646
d_2 = -0.49646 - .40√(.0833)
= -0.61193
N(d_1) = can be found using the z -table and it is the call option's delta value.
N(d_1) = N(-0.49646) = 0.31