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Perfect option hedging and the hedge ratio

Authors
Journal
Economics Letters
0165-1765
Publisher
Elsevier
Publication Date
Volume
29
Issue
3
Identifiers
DOI: 10.1016/0165-1765(89)90068-2

Abstract

Abstract This paper examines the common practice of combining stock options and the underlying stock to eliminate risk using solely the hedge ratio. It provides necessary and sufficient conditions on the stock price process for this approach to work.

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