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Topic: Business
Number of pages / Number of words: 5 / 1170
Essay's paper body

We have to continuously rebalance the option position in order to maintain the options portfolio beta of zero. Beta is a measure of risk and a perfect hedge will eliminate all risk in theory. Beta of a portfolio could be calculated as a weighted average of the portfolio beta .Technically the beta of the options should have been -2...


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But it is hard to figure out the real beta due to continuous rebalancing of the portfolio and as we were unable to incorporate small changes in the stock price. This is correct

After hedging the portfolio of $1,000,000 with long shares and short calls, there was a net investment of $909,674 in the 1st week of the hedge...


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