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Consider a call option. If, in a two-state model, a stock can take a price of $180 or $135, what would be the hedge ratio
Consider a call option. If, in a two-state model, a stock can take a price of $180 or $135, what would be the hedge ratio for each of the following exercise prices: $180, $175, $165, $135? (Leave no cells blank - be certain to enter "0" wherever required. Round your answers to 2 decimal places.)
X | Hedge Ratio | |
$ | 180 | |
$ | 175 | |
$ | 165 | |
$ | 135 | |
b. What do you conclude about the hedge ratio as the option becomes progressively more in the money?
Increases to a maximum of 1.0 | |
Decreases to a minimum of 0 |
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