We will derive a two-state put option value in this problem. Data: S0 = 150; X = 160; 1 + r = 1.1. The two possibilities for ST are 180 and 100.
a. The range of S is 80 while that of P is 60 across the two states. What is the hedge ratio of the put? (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.)
Hedge ratio
b-1. Form a portfolio of 3 shares of stock and 4 puts. What is the (nonrandom) payoff to this portfolio? (Round your answer to 2 decimal places.)
Nonrandom payoff $
b-2. What is the present value of the portfolio? (Round your answer to 2 decimal places.)
Present value $
c. Given that the stock currently is selling at 150, calculate the put value. (Round your answer to 2 decimal places.)
Put value $