We have a 2-state, 2-period world (i.e. t = 0, 1, 2). The current stock price is 100 and the risk-free rate each period is 2%. Each period the stock can either go up by 10% or down by 10%. A European call option on this stock with an exercise price of 100 expires at the end of the second period.

What are the hedge ratios at t = 1? (closest answer)

		1.00and 0.50
		0.00 and 0.25
		1.00 and 0.75
		Impossible to estimate since there is only one hedge ratio at t = 1
		0 and 0.95