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What is the objective of a hedge portfolio in the Binomial Option Pricing Model?

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Finance

What is the objective of a hedge portfolio in the BinomialOption Pricing Model?

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Suppose that a market maker sells an option on a stock He ison the hook to sell or buy shares of the stock if the call orput buyer decides to exercise ie when the share price of theunderlying stock is above or below the strike price He canhedge the risk of a short option position by creating a longsynthetic option ie creating a portfolio that replicates thesame payoff of the option he sold This replicating portfolioconsists of shares of the stock and an appropriate amount of lending orborrowing The is also called the hedge ratio and is the number of    See Answer
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What is the objective of a hedge portfolio in the BinomialOption Pricing Model?

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