Chapter 9.M, Problem 4.4E

To determine

Option:

It represents a right to trade some quantity of a particular underlying, whether you may buy it or sell it.

If an option allows buying a functional stock or share, it is said to be a call option.

If an option allows selling a functional stock or share, it is said to be a put option

Fair value hedge:

A hedge against an asset that has a fixed value that changes according to the supply and demand is known as fair value hedge.

:

The reasons for the value of option being more than zero in the beginning.