To determine the value of the ________, H, we must know Cᵤ and Cd. These two values are equal to the difference between the price of the asset and the strike price in the two possible states.

Question

Quizplus · Accepted Answer

The hedge ratio (H) is determined by knowing the values of Cᵤ (the price of the call option in the up state) and Cd (the price of the call option in the down state), which are related to the difference between the price of the asset and the strike price in two possible states. This concept is fundamental in options pricing, particularly in the binomial options pricing model.

To Determine the Value of the ________, H, We Must