Suppose an investor wants to replicate a call option on the…
Suppose an investor wants to replicate a call option on the following stock and that the assumptions of the BSOPM are correct.The underlying stock’s price is $52.25 and the annualized volatility of its log-returns is 46%. The option to be replicated has a strike price of $57.25 and a twelve-month maturity. The risk-free rate is currently 4.00% per year, continuously compounded.How much cash would the investor need to save or borrow to replicate the call?
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