Tagged Questions
8
votes
1answer
190 views
Hedging duality
We consider a financial market over the time interval $[0,T]$ where a risky asset is a semimartingale $S$. By $\mathbb{P}$ we denote the set of all equivalent local martingale measures (ELMM). We ...
14
votes
3answers
1k views
Why hold options when you can dynamically replicate their payoff?
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 ...
13
votes
2answers
573 views
Duality between constant rebalanced portfolio (CRP) and corresponding derivative
One of the greatest achievements of modern option pricing theory is finding corresponding dynamical trading strategies in linear instruments with which you can replicate and by that price derivative ...
5
votes
1answer
338 views
How to calculate equivalent futures position?
Let's say I have the following two positions:
Buy ATM SPX call, expires in 1 month
Sell ATM SPX put, expires in 1 month
This creates a synthetic futures position. How do I calculate how many ...
