Question
We will derive a two-state call option value in this problem. Data: S 0 = 140; X = 150; 1 + r = 1.1. The
We will derive a two-state call option value in this problem. Data: S0 = 140; X = 150; 1 + r = 1.1. The two possibilities for ST are 170 and 70.
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? (Round your answer to 2 decimal places.)
Hedge ratio?
b. Calculate the value of a call option on the stock with an exercise price of 150. (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.) (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Call value?
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Principles of Finance
Authors: Scott Besley, Eugene F. Brigham
6th edition
9781305178045, 1285429648, 1305178041, 978-1285429649
