The Black-Scholes formula entails market completeness, so the price of an option is only the cost associated with dynamically hedging the option. Where does this cost come from? I don't see how ...
I have two related questions concerning Black Scholes and delta hedging. I thought about this two questions, but I could not come up with an answer, so maybe you guys & girls can help me: If an ...
When holding vanilla options, you can cancel out, theoretically, all risk with dynamic (delta) hedging. Then you earn the "risk free rate of return". Why would you make such a portfolio when you can ...