Data s0 120 x 126 1 r 105 the two possibilities for st, Ask an Expert

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Data: S0 = 120; X = 126; 1 + r = 1.05. The two possibilities for ST are 150 and 102.

a. The range of S is 48, while that of C is 24 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 $126. (Do not use continuous compounding to calculate the present value of X in this example because we are using a two-state model here, not a continuous-time Black-Scholes model.) (Round your answer to 2 decimal places. Omit the "$" sign in your response.)

Call value $

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Financial Management, Finance

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