CFA Practice Question

There are 227 practice questions for this study session.

CFA Practice Question

In the BSM model for a put option, d1 is calculated as 0.49 and d2 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(-d1) = - (1 - N(d1)) = - (1 - N(0.49)) = - (1 - 0.6879) = -0.3121. The equivalent number of bonds is N(-d2) = 1 - N(d2) = 1 - N(-0.23) = 1 - 0.4090 = 0.5910.

User Contributed Comments 0

You need to log in first to add your comment.