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Data: S0 = 106; X = 112; 1 + r = 1.01. The two possibilities for ST are 149 and 75.

1. The range of S is 50 while that of P is 37 across the two states. What is the hedge ratio of the call?

2. find out the value of a call option on the stock with an exercise price of $112. (Do not use continuous compounding to find out the present value of X in this ex because we are using a two-state model here, not a continuous-time Black-Scholes model.)

Basic Finance, Finance

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