The Single Period Binomial Hedge Ratio for Stock Call Options

question 21

True/False

The single period binomial hedge ratio for stock call options could be computed by equating the two future cash flows -- from a portfolio of long h shares of stock and short one call -- and solve for the number of underlying stocks to hold.

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Definitions:

Biological Asset

Living plants or animals that are held by an entity for purposes such as sale, into agricultural produce, or into additional biological assets, which are expected to provide economic benefits to the entity.

AASB 141

Refers to the Australian Accounting Standards Board guidance on Agriculture, providing a framework on how to account for agricultural activity.

Fair Value

The amount expected to be gained from the sale of an asset or expended in relocating a liability during a planned interaction with market entities at the time of assessment.

Heifers

Young female cattle that have not yet born a calf, often raised for beef or kept for breeding purposes.