What is the hedge ratio and what does it signify

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Reference no: EM131458126

Question: a. Given the preceding data, set up a perfect hedge and compute the call option's value.

b. What is the hedge ratio? What does it signify?

Based on the following data for a single-period binomial model:

1905_17.B.png

Note: In this problem:

The up factor U is US/S = 120.773898/100 = 1.2077.

The down factor D is DS/S = 89.471504/100 = 0.8947

Dollar return 1 R = 1.0513.

We report numbers to four places and the final answer to two places after the decimal point although calculations consider ten places after the decimal point.

Reference no: EM131458126

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