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New random variables for a completely new simulation

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Reference no: EM133058270

The hedge strategy described above involves dynamically adjusting how many shares of the stock we own each day as the stock's price changes. Focusing on just the ?rst simulation, plot Apple's daily stock price each day of the year and the hedge ratio each day. You can do this as a 2-y-axis line chart with Day as the x-axis.

a. Recalculate this plot several times. You can recalculate in the formulas tab of Excel or by pushing F9, and every time you recalculate, Excel generates new random variables for a completely new simulation. What do you observe? How does the hedge ratio change over time? What happens to it as the option nears maturity?

b. When the stock price falls, what happens to the hedge ratio? Does this imply buying or selling Apple when its price falls?

Reference no: EM133058270

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