When the Returns of an Option and Stock Are Perfectly

question 75

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 the ratio of ________.

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

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