Hedge ratio: H = nS - c, Rdg 62, EOC 4
Hi,
EOC 4 b) says to find the n (hedge ratio) for a stock value (S) of 65, c+ value of 20.86, c- value of 2.68, c value of 12.85, S+ of 78, and S- of 53.95.
if you do that math for n with the n formula:
n = (20.86 - 2.68)/(78 - 53.95) = .7559
and I have no problem up to now. my issue comes when I try to use the H = nS - c formula.
I feel like if you’ve correctly calculated n, you should get an H value of 0, but maybe this is an incorrect assumption. in any case, for this problem;
H = nS - c = .7559(65) - 12.85 = 36.84
Again; I was under the impression that the H value should be 0 in a perfectly hedged portfolio, so my question is, if that’s not the case, what does 36.84 represent in this scenario? Is $36.84 just the value of being long .7559 of a share, and being short one option? is it not “supposed” to be something in a perfectly hedged portfolio? |
发表于 2013-4-10 06:09
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