.... so the payoff of the put itself is not displayed, but rather what is displayed here is the net position of [stock + put] in the green, as the net position. I trust you'll see this if you download the latest version of the Hull note. Thanks!Consider an investor who owns 1,000 shares of a particular at a share price of $28.00 per share. The investor is concerned about a possible share price decline in the next 2 months and wants protection. The investor could buy put option contracts expiring in 2 months on the company’s stock with a strike price of $27.50. The quoted option price is $1.00 per option contract.
@Abchaudh@David Harper CFA FRM: I dont like to pester about the error in the notes which might be highlighted by many more people in the forum. If you look at page no. 55 of Hull study notes you will find that the last calculation of page 55 is not converting given CC rates to Semi Annual rates,but it is directly taking CC rates and calculating Semi Annual Forward rate. I think the calculation should first convert the CC rates to Semi Annual rates, after this conversion we should use the given formula to calculate the semi annual forward rate. I am pasting precisely which calculation I am talking about below.
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Hello @AbchaudhHi @David Harper CFA FRM, @Nicole Seaman,
On page no. 138, the formula for the convexity term is ΔP/P = ... 0.5*C*Δy^2; in this case, 0.5*30^2*0.0035 = 0.55125%. I think you have to correct the formula in notes as well. The formula should read "0.5*30^2*0.0035^2 = 0.55125%" in the notes. The formula has been corrected by David in forum answers but the Notes version is still showing the incorrect calculation.