Find the hedge ratio for a call option on 10000 with a, Financial Management

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Find the hedge ratio for a call option on 10000 with a

Find the hedge ratio for a call option on £10,000 with a strike price of €12,500. The current exchange rate is €1.50/£1.00 and in the next period the exchange rate can increase to €2.40/£ or decrease to €0.9375/€1.00 (i.e. u = 1.6 and d = 1/u = 0.625). The current interest rates are i€ = 3% and are i£ = 4%.

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Financial Management: Find the hedge ratio for a call option on 10000 with a

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Financial Management: Find the hedge ratio for a call option on 10000 with a

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