Reconsider the determination of the hedge ratio in the two- state model (in Section 19.3), where we
Question:
Reconsider the determination of the hedge ratio in the two- state model (in Section 19.3), where we showed that one- half share of stock would hedge one option. What is the hedge ratio at the following exercise prices: 120, 110, 100, 90? What do you conclude about the hedge ratio as the option becomes progressively more in the money?
Step by Step Answer:
Exercise Price Hedge Ratio 120 03...View the full answer
Investments
ISBN: 978-0071338875
8th Canadian Edition
Authors: Zvi Bodie, Alex Kane, Alan Marcus, Stylianos Perrakis, Peter
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Stocks (also known as equities) are securities that represent ownership in a company. They are issued by companies to raise capital, and when an individual buys stocks, they become a shareholder in that company. Investing in stocks can be a way for individuals to potentially earn a return on their investment through dividends and capital appreciation. However, investing in stocks also carries a level of risk, as the value of the stock can fluctuate based on various factors such as the financial performance of the company and general market conditions. For companies, issuing stocks can be a way to raise funds for growth and expansion. When a company goes public by issuing an initial public offering (IPO), it can raise significant capital by selling ownership stakes to the public. Companies can also issue additional stock offerings to raise additional capital as needed.
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