Question
We will derive a two-state call option value in this problem. Data: S 0 = 240; X = 250; 1 + r = 1.1. The
We will derive a two-state call option value in this problem. Data: S0 = 240; X = 250; 1 + r = 1.1. The two possibilities for ST are 270 and 170.
a. The range of S is 100 while that of C is 20 across the two states. What is the hedge ratio of the call?
b. Calculate the value of a call option on the stock with an exercise price of 250. (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.)
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The World Is Your Oyster The Guide To Finding Great Investments Around The Globe
Authors: Jeff D. Opdyke
1st Edition
0307381048, 978-0307381040
