We will derive a two-state call option value in this, Ask an Expert

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We will derive a two-state call option value in this problem. Data: S0 = 240; X = 250; 1 + r = 1.1. The two possibilities for S_Tare 270 and 170.

a. The range of S is 100 while that of C is 20 across the two states. What is the hedge ratio of the call?

b. Calculate the value of a call option on the stock with an exercise price of 250. (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.)

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92397244

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