Do we understand delta hedging?
We 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.
When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpfi:0408008. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA)
If references are entirely missing, you can add them using this form.