Do we understand delta hedging?
AbstractWe show that the delta-hedged portfolio is not actually risk-free even for brownian underlying due to history dependence in the ammount of hold portfolio. We find this ammount explicitly, as a function of underlying price evolution and option price. This shows that even in the B-S world (perfect market and brownian asset price evolution) the B-S equation can only be an approximation.
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Bibliographic InfoPaper provided by EconWPA in its series Finance with number 0408008.
Length: 4 pages
Date of creation: 24 Aug 2004
Date of revision:
Note: Type of Document - pdf; pages: 4
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hedging; Black Scholes;
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- G - Financial Economics
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