You produce tiramisu cakes. You plan to sell 1,000 cakes in a month. Your revenue will...
You produce tiramisu cakes. You plan to sell 1,000 cakes in a month. Your revenue will be $10,000-S(1), where S(1) denotes the price of the amount of Belgian chocolate required to dust the 1,000 cakes.
Assume that the continuously compounded annual risk-free interest rate equals 6%.
Your hedge consists of the following two components:
1. one long one-month, $9,000-strike call option on the amount of chocolate you need; its premium is Vc(0)=$60
2. one written one-month, $8,500-strike put option on the amount of chocolate you need, its premium is Vp(0)=$200
Calculate the range of profits of the hedged portfolio.
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You produce tiramisu cakes. You plan to sell 1,000 cakes in a
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