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What are the replicating portfolios for the one-period calls

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Reference no: EM133005845

Question - Suppose a stock index is currently trading at 4000 (and to keep things simple, we assume it also pays no dividends-at least for now!). Next period the index will either go up by 9% or down by 11%. The simple one-period risk-free rate is 1%.

i. What are the replicating portfolios for the one-period calls on the index struck at K = 3800 and K = 4200?

ii. So what are these calls' price?

iii. What are the replicating portfolios for the one-period puts with the same two strikes?

iv. So what are these puts' price?

Reference no: EM133005845

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