Question

Suppose you have written a derivative that pays the squared value of the stock price at maturity T=1; that is, it pays S2(1). The stock currently trades at S(0)=100. Your model is a single period binomial tree with up value for the stock equal to 102 and the down value equal to 98. One dollar deposited at time zero into the risk-free asset returns 1.01 dollars at maturity.

Enter the number of shares that the replicating portfolio holds (if selling short, use the minus sign):

correct
200


>>Enter the cost of the replicating portfolio:

correct
10102.97

Answer 1

I have an update, could you help me?

Suppose you have written a derivative that pays the squared value of the stock price at maturity T=1; that is, it pays S3(1). The stock currently trades at S(0)=100. Your model is a single period binomial tree with up value for the stock equal to 102 and the down value equal to 98. One dollar deposited at time zero into the risk-free asset returns 1.01 dollars at maturity.

Enter the number of shares that the replicating portfolio holds (if selling short, use the minus sign):



>>Enter the cost of the replicating portfolio: