Question

The following information is given about options on the stock of a certain company. S0 = 23 X = 20 rc = 0.09 T = 0.5 σ2 = 0.15 No dividends are expected. To construct a riskless hedge, the number of puts per 100 shares purchased is: (Due to differences in rounding your calculations may be slightly different. “none of the above” should be selected only if your answer is different by more than 0.01.) 0.7580 0.2420 -0.2480 -0.6628 none of the above

Answer 1

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Delta of 1 put= 1-|N(d1)| = 1-0.9637 = -0.0363
(Delta of put is opposite sign of N(d1))

So delta of 100 put = -3.63

Hedge ratio = 1/Delta = -0.2755


No.of puts to be purchased = 0.2755

Answer: None of the Above.