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We will derive a two-state call option value in this problem. Data: S0 = 280; X = 290; 1 + r = 1.1. The two possibilities for ST are 320 and 200.
a. The range of S is 120 while that of C is 30 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 290. (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.) (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Call value
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