15) More on Replicating Portfolios Flashcards
1
Q
What does it mean if a portfolio replicates a financial contract
A
2
Q
How can a trader use a replicating portfolio to lock in a guaranteed profit immediately upon selling an option
A
3
Q
What is Static Hedging
A
We set up the portfolio initially and it does not need to be adjusted subsequently as time progresses. All financial transactions in the portfolio are made at the initial time t = 0
4
Q
What is Dynamic Hedging
A
Continuous re-balancing of the number of shares (∆) in the portfolio as time progresses
5
Q
What is a dynamic risk elimination procedure
A
