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Determine the stock position that the investor should take

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Reference no: EM132957934

Question - The price of a share of a non-dividend paying stock is currently $103. The risk-free interest rate is 5% per year and the standard deviation of the annual rate of return on the stock is 25%. An investor buys a one-year European put option with a strike price of $105 per share. Assume that the option is written on 1000 shares of stock. Using the Black Scholes pricing model, determine the stock position that the investor should take today to hedge the market risk of the option position.

Reference no: EM132957934

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