- CFA Exams
- CFA Level I Exam
- Study Session 14. Derivatives
- Reading 38. Valuation of Contingent Claims
- Subject 4. Black-Scholes-Merton Option Valuation Model

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**CFA Practice Question**

In the BSM model for a put option, d

_{1}is calculated as 0.49 and d_{2}is -0.23. If you want to replicate the put option payoffs with stocks and zero-coupon bonds, you should long ______ bonds and short ______ stocks.Correct Answer: 0.5910; 0.3121

For put options, the equivalent number of shares is -N(-d

_{1}) = - (1 - N(d_{1})) = - (1 - N(0.49)) = - (1 - 0.6879) = -0.3121. The equivalent number of bonds is N(-d_{2}) = 1 - N(d_{2}) = 1 - N(-0.23) = 1 - 0.4090 = 0.5910.###
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