Question
We will derive a two-state put option value in this problem. Data: S 0 = 100; X = 110; 1 + r = 1.10. The
We will derive a two-state put option value in this problem. Data: S0 = 100; X = 110; 1 + r = 1.10. The two possibilities for ST are 130 and 80.
a. The range of S is 50 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 110. (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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Intermediate Financial Management
Authors: Eugene BrighamPhillip Daves
1st Edition
0324594712, 9780324594713
