Problem

19. Portfolio insurance: The current price of the stock we are holding is $100. We want to...

19. Portfolio insurance: The current price of the stock we are holding is $100. We want to continue to hold the stock position but modify it so that the portfolio value never drops below $90. If the stock may move up to $130 or down to $80 after one period, how do we modify our holding of $100 so as to make sure that it is at least of $90 value at the end of the period? The rate of simple interest for the period is 10%.

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Solutions For Problems in Chapter 11