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Call Option Hedge Ratio Assignment | Homework For You

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January 24th, 2020

Reconsider the determination of the hedge ratio in the two-state model where we showed that one-third share of stock would heHomework For You

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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

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O Decreases to a minimum of 0. Get Finance homework help today

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