27 Jun We Will Derive A Two-state Call Option Value In This Proble
We will derive a two-state call option value in this problem. Data: S0 = 180; X = 190; 1 + r = 1.1. The two possibilities for ST are 210 and 110.
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? (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 190. (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.) (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Call value
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