USe the following data for a single-period binomial model to answer the questions that follow.
YBM's stock price S is $102 today.
- After six months,the stock price can either go up to $115.63212672,or go down to $93.52995844.
- Options mature after T = 6 months and have an exercise price of K =$105.
- The continuously compounded risk-free interest rate r is 5 percent per year.
-Given the above data,the hedge ratio and the put option's value are given by:

Question

Quizplus · Accepted Answer

We can use the formula for the hedge ratio to calculate it:
$$
\Delta=\frac{S_u-S_d}{S_0(u-d)}=\frac{115.63212672-93.52995844}{102(1.154902)-102(0.8579441)}=0.5190
$$
And we can use the put option pricing formula to calculate the put option's value:
$$
P=\frac{Ke^{-rT}(1-p)-S_0\Delta(1-p)}{1+R_f}=\frac{105e^{-0.05	imes0.5}(1-0.5130)-102	imes0.5130(1-0.5130)}{1.05}=5.59
$$
So the correct answer is D, with a hedge ratio of 0.5190 and a put option value of $5.59.

USe the Following Data for a Single-Period Binomial Model to Answer