A non-dividend-paying stock is currently trading at 100. A call option has one year to mature, the periodically compounded risk-free interest rate is 5.15%, and the exercise price is 100. Assume a single-period binomial option valuation model, where u = 1.35 and d = 0.74.

Question1:

The call option value will be closest to?


Q2 The optimal hedge ratio will be closest to?

Answer rating: 100% (QA)

Using the binomial option pricing model Q1 First we need to calculate the up and down movements o... View the full answer