The Black-Scholes hedge ratio for a long put option is equal to ________. A) N(d₁) B) N(d₂) C) N(d₁) − 1 D) N(d₂) − 1

Question

Quizplus · Accepted Answer

The Black-Scholes hedge ratio for a long put option is given by N(d1) - 1, where N(d1) is the cumulative distribution function of the standard normal distribution evaluated at d1. This corresponds to choice C, which represents the hedge ratio as N(d₁) − 1, albeit the notation might seem unconventional. The correct conceptual answer is that the hedge ratio for a long put involves subtracting 1 from the cumulative normal distribution function value.

The Black-Scholes Hedge Ratio for a Long Put Option Is