What is hedge ratio of the call

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Reference no: EM132044488

We will derive a two-state call option value in this problem. Data: S0 = 120; X = 100; 1 + r = 1.1. The two possibilities for ST are 140 and 90.

a. The range of S is 50 while that of C is 40 across the two states. What is the hedge ratio of the call? (Round your answer to 2 decimal places.)

b. Calculate the value of a call option on the stock with an exercise price of 100. (Do not use continuous compounding to calculate the present value of X in this example, because the interest rate is quoted as an effective per-period rate.) (Do not round intermediate calculations. Round your answer to 2 decimal places.) Call value $

Reference no: EM132044488

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