Find the hedge ratio for a put option on €10,000 with a strike price of $15,000. In one period the exchange rate (currently S($/€) = $1.50/€) can increase by 60% or decrease by 37.5% .
A)-15/49
B)8/13
C)-5/13
D)15/49

Question

Quizplus · Accepted Answer

The hedge ratio (delta) for a put option is calculated as (P_u - P_d) / (S_u - S_d), where P_u and P_d are the option payoffs in the up and down states, and S_u and S_d are the corresponding exchange rates. Calculating these values gives a hedge ratio of -5/13.

Find the Hedge Ratio for a Put Option on €10,000