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