Use the two-state put-option value in this problem.S_O = $100; X = $120; the two possibilities for S_T are $150 and $80.The range of P across the two states is _____, and the hedge ratio is _______. A)$0 and $40; -4/7 B)$0 and $50; +4/7 C)$0 and $40; +4/7 D)$0 and $50; -4/7

Question

Quizplus · Accepted Answer

The range of the put option value (P) is $0 when the stock price is $150 (since the option is out of the money) and $40 when the stock price is $80 (since the option is in the money and worth $120 - $80). The hedge ratio is calculated as the change in the option price divided by the change in the stock price, which is -4/7.

Use the Two-State Put-Option Value in This Problem