Question: We will derive a two-state call option value in this problem. Data: So 110; X 120;11.1. The two possibilities for Sr are 140 and 100.

We will derive a two-state call option value in this problem.

We will derive a two-state call option value in this problem. Data: So 110; X 120;11.1. The two possibilities for Sr are 140 and 100. a. The range of S is 40 while that of C is 20 across the two states. What is the hedge ratio of the call? (Round your answer to 2 decimal places.) Hedge ratio b. 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 the 0.5 interest rate is quoted as an effective per-period rate.) (Do not round intermediate calculations. Round your answer to 2 decimal places.) Call value

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