Call Option Hedge Ratio Assignment | Homework For You
Reconsider the determination of the hedge ratio in the two-state model where we showed that one-third share of stock would hedge one option. The possible end-of-year stock prices, uso = $115 (up state) and dSo = $83 (down state).
a. What would be the call option hedge ratio for each of the following exercise prices: $115, $110, $92, $83, given the possible end-of- year stock prices, uso = $115 (up state) and dSo = $83 (down state)? (Round your answers to 3 decimal places.) Hedge Ratio Exercise Price 115 110
b. What do you conclude about the hedge ratio as the option becomes progressively more in the money?
O Increases to a maximum of 1.0
O Decreases to a minimum of 0. Get Finance homework help today