Ask Question
9 March, 03:20

Reconsider the determination of the hedge ratio in the two-state model where we showed that one-third share of stock would hedge one option. The possible end-of-year stock prices, uS0 = $135 (up state) and dS0 = $92 (down state).

What would be the hedge ratio for each of the following exercise prices: 135, 122, 112, 92? (Round your answers to 3 decimal places.)

Exercise Price Hedge Ratio

135

122

112

92

+1
Answers (1)
  1. 9 March, 03:26
    0
    Upper state = 135

    Down State = 92

    Difference = 135-92 = 43

    Exercise Price Hedge Ratio

    135 0/43 = 0.0000

    122 13/43 = 0.302

    112 23/43 = 0.535

    92 43/43 = 1.000
Know the Answer?
Not Sure About the Answer?
Find an answer to your question 👍 “Reconsider the determination of the hedge ratio in the two-state model where we showed that one-third share of stock would hedge one ...” in 📗 Business if the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers