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Consider a 6-month European put on GOOG with a strike price of $650. GOOG spot price is $725 and its volatility is 25%. The stock is not expected to pay any dividend. The risk-free rate is 4%.
(a) Use Black-Scholes-Merton (BSM) model to price this put option.
(b) What is the put delta? If an investor with a short position decides to delta hedge, what would the net cash flow be?
(c) Without using BSM model, what are the 6-month 650-strike straddle price and its delta?
Assess the growth of the firm in terms of its amount of total assets. Where have funds for growth come from? How does this relate to the firm's payout policy
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In class the equation for the valuation of a put option was derived. This is the expected value of the present value of the (nonnegative) payoff obtained in exercising the option. This is the Black-Scholes-Merton equation. Mimicking that derivation, ..
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