4) The time zero price of an American put option expiring at time t 2...
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4) The time zero price of an American put option expiring at time t 2 with strike price K 5 is V 1.36 if So 4, the "up factor', u-2, the "down e "up factor" u 2, the "down factor" d-1/2 and the risk-free interest rate is r-1/4. Suppose you sold this option for 1.36 and now want to hedge against the risk of the owner exercising it, by investing the 1.36 in the stock and bond. Assume you may only buy (or short sell) shares of stock or bond (borrow or invest at the risk-free interest rate) 4) The time zero price of an American put option expiring at time t 2 with strike price K 5 is V 1.36 if So 4, the "up factor', u-2, the "down e "up factor" u 2, the "down factor" d-1/2 and the risk-free interest rate is r-1/4. Suppose you sold this option for 1.36 and now want to hedge against the risk of the owner exercising it, by investing the 1.36 in the stock and bond. Assume you may only buy (or short sell) shares of stock or bond (borrow or invest at the risk-free interest rate)
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