Asked by PERLA MENDIOLA on Apr 26, 2024
Verified
A hedge ratio for a call is always
A) equal to one.
B) greater than one.
C) between zero and one.
D) between negative one and zero.
E) of no restricted value.
Hedge Ratio
The ratio used to manage risk in financial portfolios, determining the size of a position required to offset potential losses.
- Absorb the basic principles and terms of option pricing, including delta, hedge ratio, and elasticity.
Verified Answer
TH
Tanner HearneApr 29, 2024
Final Answer :
C
Explanation :
The hedge ratio for a call option, also known as the option's delta, measures the rate of change of the option price relative to the change in the price of the underlying asset. It typically ranges between 0 (for deep out-of-the-money calls) and 1 (for deep in-the-money calls), indicating how much the price of the option is expected to move for a one-unit move in the price of the underlying asset.
Learning Objectives
- Absorb the basic principles and terms of option pricing, including delta, hedge ratio, and elasticity.