# Replicating Put Option

• The Pay-offs from a put option can be replicated by selling delta share and setting aside a sum of money in a risk-free investment
• In our example, the delta for the put option is given by:

• The amount to be placed in risk-free investment is PV(48.57). Calculated as shown below:
• The put can be replicated as shown below:

 Scenario 1 Scenario 2 Stock Price 63.75 113.33 Option Value 21.25 0 Value of âˆ†Stock 27.32 48.57 Payoff from Option 21.25 0 Portfolio Value 48.57 48.57

• The value of put therefore is:
• Value of put = -0.4286 shares + PV( Rs. 48.57) (safe loan)
= - (0.4286 * 85) + 47.62= Rs. 11.19