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Assignment on dynamic hedging

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Reference no: EM133121735

Dynamic Hedging

Suppose that a stock price is currently $20 and that a call option with an exercise price of $25 is created synthetically using a continually changing position in the stock. Consider the following two scenarios:

.(a) Stock price increases steadily from $20 to $35 during the life of the option;

(b) Stock price oscillates wildly, ending up at $35. Which scenario would make the synthetically created option more expensive? Explain your answer.

Reference no: EM133121735

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