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seen Aug 9 '13 at 0:16

Dec
23
comment easy one step option replication
I understand the hedging argument. but it conflicts with my intuition. Think in this way, I want to sell you this option that gives you 10\$ in 99% and 0\$ otherwise. Would you pay 6\$ for it? But please don't answer no because hedging argument tells me that 5\$ is the real price.
Dec
22
comment easy one step option replication
So imagine we know that this derivative is option on this stock. I still don't find it intuitive that option is worth 5\$, where with 99% chance you get 10\$.
Dec
11
comment hedging two bonds in different currencies with FX forward
Thanks for the deatiled answer, now I understand you question from the begining. My question was to hedge against exposure to geometric Brownian motion, using only these two bonds, FX forward and possbile zero interest rate savings account. Thank you!
Dec
10
comment hedging two bonds in different currencies with FX forward
Could you give me a hint how to do it?