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Title :Corporate finance, how they get it 35 could you pleas explain it ...

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Finance

Title :Corporate finance,

how they get it 35 could you pleas explain it

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m is called Hedge-Ratio and gives the number of calls to be sold, in order to create a risk-free portfolio. Example: Consider a call on a stock. The price of the stock is Uo = 100. The strike price of the option is X = 90 and the up-factor is u = 1.25. To create a risk-free portfolio m must be set to 100(1.25 0.8) m 1.286 35 0 Thus, 1.286 call options luce sold (short selling!). Regardless of the upcoming state, the portfolio has a payoff of 80 in t = 1: 1.25. 100 1.286 35 80 0.8.100 1.286.0 80

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