Quick question:

If an option is replicated by portfolio A, is it hedged by portfolio -A?

Or is there a portfolio of positive value that you can use to hedge the option?

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- April 8th 2008, 12:23 PMOliHedging a derivative
Quick question:

If an option is replicated by portfolio A, is it hedged by portfolio -A?

Or is there a portfolio of positive value that you can use to hedge the option? - April 8th 2008, 12:45 PMmathceleb
I'm not much of a stock guy, but i asked around, as well as researched, does this help?

Black–Scholes - Wikipedia, the free encyclopedia - April 21st 2008, 04:20 AMgasbasis
If the cash flows of an option are exactly replicated by portfolio A, then yes, holding -A will offset its payoffs

But we're in the realm of science fiction here since A must be rebalanced continuously in order for it to work. - April 21st 2008, 06:23 AMcolby2152
- April 21st 2008, 10:48 AMgasbasis
- April 21st 2008, 10:54 AMcolby2152
- April 21st 2008, 12:07 PMgasbasis
then why bother putting all those other nasty Greeks on your book with an option when you can do just fine with a linear instrument?