When the Returns of an Option and Stock Are Perfectly

question 9

Multiple Choice

When the returns of an option and stock are perfectly correlated as in a two state binomial option model,the hedge ratio must be equal to ____________.

• A) the ratio of the range of the option outcomes to the range of the stock outcomes
• B) the ratio of the range of the stock outcomes to the range of the option outcomes
• C) the ratio of the standard deviation of the option returns to the standard deviation of the stock returns
• D) the ratio of the standard deviation of the stock returns to the standard deviation of the option returns

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Definitions:

Reasonableness Standard

A legal criterion used to assess whether an individual's actions under specific circumstances were logical and fair.

Excessive Force

The use of force greater than what is necessary under the circumstances by law enforcement personnel, often a subject of legal and ethical debate.

U.S. Supreme Court

The highest federal court in the United States, holding ultimate appellate jurisdiction over all federal and state court cases that involve a point of federal law.

Deadly Force

The use of physical force that is likely to cause death or serious bodily harm, often discussed in the context of law enforcement.