Trader decides to protect her portfolio with put option

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A trader decides to protect her portfolio with a put option. The portfolio is worth $150 million and the required put option has a strike price of $145 million with a maturity of 24 weeks. The volatility of the portfolio is 15% and the dividend yield on the portfolio is 3% per annum. The risk-free rate is 4%. Because the option is not available on exchanges, the trader decides to create an option by maintaining a position in the underlying portfolio with the required delta. What percentage of the original portfolio should be sold and invested at the risk-free rate:

A. Initially at time zero

B. After one week what amount should be bought or sold, when value has changed to $145 million?

C. After two weeks (hence changing from one week after when the value was $145 million) what amount should be bought or sold, when value has changed to $148 million?

Reference no: EM131074637

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