Question: Data: S 0 = 100; X = 120; 1 + r = 1.2. The two possibilities for S T are 130 and 80. 1 .

Data: S₀ = 100; X = 120; 1 + r = 1.2. The two possibilities for S_T are 130 and 80.

1. The range of S is 50, while that of C is 10 across the two states. What is the hedge ratio of the call?

2. Calculate the value of a call option on the stock with an exercise price of $120. (Do not use continuous compounding to calculate the present value of X in this example because we are using a two-state model here, not a continuous-time Black-Scholes model.)

I found the hedge ratio as (10 + 0) / (130 - 80) = 0.2. Can't find the value of the call option in number 2.

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