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 ...
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 ...
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 ...