Reconsider the determination of the hedge ratio in the two-state model where we showed that one-third share of stock would hedge one option. The possible end-of-year stock prices, uS0 = $120 (up state) and dS0 = $80 (down state). a. What would be the call option hedge ratio for each of the following exercise prices: $120, $104, $93, $80, given the possible end-of-year stock prices, uS0 = $120 (up state) and dS0 = $80 (down state) ?
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