The hedge ratio
A)Is the size of the long (short)position the investor must have in the underlying asset per option the investor must write (buy)to have a risk-free offsetting investment that will result in the investor perfectly hedging the option.
B) $\frac { C _ { u T ^ { - } C _ { d T } } } { S _ { 0 } ( u - d ) }$
C)Is related to the number of options that an investor can write without unlimited loss while holding a certain amount of the underlying asset.
D)all of the options

Question

Quizplus · Accepted Answer

The hedge ratio is indeed the size of the long (short) position in the underlying asset per option to achieve a risk-free offsetting investment (A), can be mathematically represented as given in option (B), and relates to the number of options an investor can write without unlimited loss while holding a certain amount of the underlying asset (C). Therefore, all options correctly describe aspects of the hedge ratio.

The Hedge Ratio A)Is the Size of the Long (Short)position CuT−CdTS0(u−d)\frac { C _ { u T ^ { - } C _ { d T } } } { S _ { 0 } ( u - d ) }S0​(u−d)CuT−CdT​​​

The Hedge Ratio
A)Is the Size of the Long (Short)position $\frac { C _ { u T ^ { - } C _ { d T } } } { S _ { 0 } ( u - d ) }$