Question: We will derive a two-state put option value in this problem. Data: S0 = 110; X = 120; 1 + r= 1.1. The two possibilities

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

We will derive a two-state put option value in this problem. Data: S0 = 110; X = 120; 1 + r= 1.1. The two possibilities for ST are 140 and 100. The range of S is 40 while that of P is 20 across the two states. What is the hedge ratio of the put? (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.) Form a portfolio of 2 shares of stock and 4 puts. W'hat is the (nonrandom) payoff to this portfolio? (Round your answer to 2 decimal places.) What is the present value of the portfolio? (Round your answer to 2 decimal places.) Given that the stock currently is selling at 110, calculate the put value. (Round your answer to 2 decimal places.) Use the Black-Scholes formula to find the value of a call option on the above stock: Calculate the value of a call option. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

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