The current value of an underlying asset is $80.The strike price of a call option with one month to expiration is $85.There is a 20% chance that in one month the value of the underlying asset will be $75 and an 80% chance that it will be $90.
a)What is the expected value of the underlying asset and the corresponding rate of return?
b)What is the hedge ratio and the corresponding value of the call given r = 0.02%?

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The Answer of The current value of an underlying asset is $80.The strike price of a call option with one month to expiration is $85.There is a 20% chance that in one month the value of the underlying asset will be $75 and an 80% chance that it will be $90.
a)What is the expected value of the underlying asset and the corresponding rate of return?
b)What is the hedge ratio and the corresponding value of the call given r = 0.02%?

The Current Value of an Underlying Asset Is $80