Calculate value of put using replicating portfolio method

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Reference no: EM132063208

a) A stock is currently selling for $100, the interest rate is 10% per annum with continuous compounding and there is a European put option on the stock with exercise price of $110. We are told that the price in one year can be either $130 or $50. i) Calculate the hedge ratio of this put and interpret this ratio and ii) Calculate the value of this put using the replicating portfolio method, clearly demonstrating the techniques used.

Reference no: EM132063208

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