In a One-Period Binomial Model,assume That the Current Stock Price

question 21

Multiple Choice

In a one-period binomial model,assume that the current stock price is $100,and that it will rise to $115 or fall to $80 after three months.If risk-free investment has a gross return of 1.005 per three month time-step,what is the best replicating portfolio of one hundred 101-strike three-month put options from the following options?

• A)Short 60 shares of stock and long 69 units of $1 bonds.
• B)Short 65 shares of stock and long 70 units of $1 bonds.
• C)Short 65 shares of stock and short 69 units of $1 bonds.
• D)Short 65 shares of stock and short 70 units of $1 bonds.

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Definitions:

Null Hypothesis

An assertion for statistical testing that presupposes no significant difference or correlation between specified groups or variables.

Statistical Evidence

Quantitative data used to support or refute a hypothesis or to estimate the truth of a parameter.

Confidence Interval

A range of values, derived from sample statistics, that is believed to contain the value of an unknown population parameter with a certain level of confidence.

Level Of Significance

The threshold used in statistical tests to determine if a result is statistically significant, indicating the probability of the result occurring by chance.