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. What would be the
hedge ratio for each of the following exercise prices: $120, $110, $100, $90? What do
you conclude about the hedge ratio as the option becomes progressively more in the
money?

Question

05-06-2024
Business

Answered

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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. What would be the
hedge ratio for each of the following exercise prices: $120, $110, $100, $90? What do
you conclude about the hedge ratio as the option becomes progressively more in the
money?

Sagot :

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