What is the hedge ratio of the call

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Reference no: EM132004016

We will derive a two-state call option value in this problem. Data: S0 = 130; X = 140; 1 + r = 1.1. The two possibilities for ST are 170 and 95.

a. The range of S is 75 while that of C is 30 across the two states. What is the hedge ratio of the call? (Round your answer to 2 decimal places.)

Hedge ratio= .40 (got this part)

b. Calculate the value of a call option on the stock with an exercise price of 140. (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: EM132004016

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