Use one period binomial model to estimate that hedge ratio

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Use a one period binomial model to estimate that the Hedge Ratio H=2 that the fair value of the call option is $5.57 when the initial asset price is $35, the exercise price of the call option is also $35, the rate of interest bonds is %10, and the period is one year. Assume that the asset price moves up or down by 25% per year. See that a portfolio of the asset and either one call option or three call options sold at this price are subject to fluctuations in the price of the asset that could result in the investor losing.

Reference no: EM131625384

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