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Applied
Math Seminar |
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The usual approach for hedging derivative securities involves continuously revising a position in the underlying asset. This strategy is called delta hedging and can fail in practice for several reasons. We will introduce a class of alternative hedging strategies, which address some of the deficiencies of delta hedging. The alternative strategies involve taking positions in both the underlying asset and in one or more standard options written on that asset. In contrast to standard delta hedging, the hedge portfolio is revised infrequently. For this reason, the alternative class of hedging strategies are termed semi-static. We illustrate the use of semi-static hedging for several types of path-dependent and path-independent securities. |