Question: Use the one period binomial option pricing model and the following assumptions for a call option: Current stock price is 190; The strike price is

Use the one period binomial option pricing model and the following assumptions for a call option: Current stock price is 190; The strike price is 200; 1 + r = 1.1. The two possibilities for ST are 220 and 120.

a. What is the hedge ratio of the call?

b. Calculate the value of a call option using the binomial option pricing model. (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.)

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