Do we understand delta hedging?

Daniel Badagnani

Finance from University Library of Munich, Germany

Abstract: We show that the delta-hedged portfolio is not actually risk-free even for brownian underlying due to history dependence in the ammount of hold portfolio. We find this ammount explicitly, as a function of underlying price evolution and option price. This shows that even in the B-S world (perfect market and brownian asset price evolution) the B-S equation can only be an approximation.

Keywords: hedging; Black Scholes (search for similar items in EconPapers)
JEL-codes: G (search for similar items in EconPapers)
Pages: 4 pages
Date: 2004-08-24
New Economics Papers: this item is included in nep-fin
Note: Type of Document - pdf; pages: 4
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpfi:0408008

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