Tag Info

Hot answers tagged

1

This is a much simpler problem than stated, (assuming the correlation is positive). In 1 month you need to BUY 2mn of jet fuel. If Jet fuel prices go up, you lose money as it's more expensive. If jet fuel prices go down, you make money as it's cheaper. So to "hedge" your risk you will LONG the heating oil, as you are not in the business of speculating on ...


1

In the Merton jump diffusion model, the stock price process consists of a continuous part and a discrete part (this one represents the jumps). While deriving the PDE for the riskless portfolio and imposing the riskless evolution, the discrete part can't be instantaneously hedged. In fact, you can assume that the effects of jumps can be nullified on average, ...



Only top voted, non community-wiki answers of a minimum length are eligible