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. The possible end-of-year stock prices, us $135 (up state) and dSo = $115 (down state). Required: = a. What would be the call option hedge ratio for each of the following exercise prices: $135, $127, $120, $115, given the possible end- of-year stock prices, us $135 (up state) and dSo $115 (down state)? = = b. What do you conclude about the hedge ratio as the option becomes progressively more in the money? × Answer is not complete. Complete this question by entering your answers in the tabs below. Required A Required B What would be the call option hedge ratio for each of the following exercise prices: $135, $127, $120, $115, given the possible end-of-year stock prices, uso = $135 (up state) and dS = $115 (down state)? Note: Round your answers to 3 decimal places. Exercise Hedge Ratio Price $ 135 0.500 127 0.500 × 120 0.500 × $ 115 0.500 ×
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. The possible end-of-year stock prices, us $135 (up state) and dSo = $115 (down state). Required: = a. What would be the call option hedge ratio for each of the following exercise prices: $135, $127, $120, $115, given the possible end- of-year stock prices, us $135 (up state) and dSo $115 (down state)? = = b. What do you conclude about the hedge ratio as the option becomes progressively more in the money? × Answer is not complete. Complete this question by entering your answers in the tabs below. Required A Required B What would be the call option hedge ratio for each of the following exercise prices: $135, $127, $120, $115, given the possible end-of-year stock prices, uso = $135 (up state) and dS = $115 (down state)? Note: Round your answers to 3 decimal places. Exercise Hedge Ratio Price $ 135 0.500 127 0.500 × 120 0.500 × $ 115 0.500 ×
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter5: Financial Options
Section: Chapter Questions
Problem 3Q
Related questions
Question
![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. The possible end-of-year stock prices, us $135 (up state) and dSo = $115 (down state).
Required:
=
a. What would be the call option hedge ratio for each of the following exercise prices: $135, $127, $120, $115, given the possible end-
of-year stock prices, us $135 (up state) and dSo $115 (down state)?
=
=
b. What do you conclude about the hedge ratio as the option becomes progressively more in the money?
× Answer is not complete.
Complete this question by entering your answers in the tabs below.
Required A
Required B
What would be the call option hedge ratio for each of the following exercise prices: $135, $127, $120, $115, given the possible
end-of-year stock prices, uso = $135 (up state) and dS = $115 (down state)?
Note: Round your answers to 3 decimal places.
Exercise
Hedge
Ratio
Price
$
135
0.500
127
0.500 ×
120
0.500 ×
$
115
0.500 ×](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F6387f1fe-f7de-460c-a439-51c8967659dd%2Fd96b15b0-1505-4ef3-8cb9-e1c4abe532ae%2F618s37_processed.png&w=3840&q=75)
Transcribed Image Text: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. The possible end-of-year stock prices, us $135 (up state) and dSo = $115 (down state).
Required:
=
a. What would be the call option hedge ratio for each of the following exercise prices: $135, $127, $120, $115, given the possible end-
of-year stock prices, us $135 (up state) and dSo $115 (down state)?
=
=
b. What do you conclude about the hedge ratio as the option becomes progressively more in the money?
× Answer is not complete.
Complete this question by entering your answers in the tabs below.
Required A
Required B
What would be the call option hedge ratio for each of the following exercise prices: $135, $127, $120, $115, given the possible
end-of-year stock prices, uso = $135 (up state) and dS = $115 (down state)?
Note: Round your answers to 3 decimal places.
Exercise
Hedge
Ratio
Price
$
135
0.500
127
0.500 ×
120
0.500 ×
$
115
0.500 ×
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