We examine the possibility of incorporating information or views of market movements during the holding period of a portfolio, in the hedging of European options with respect to the underlying. Given a holding period interval that is bounded below, we explore whether it is possible to adjust the number of shares needed to effectively hedge our position to account for views on market dynamics from present until liquidation , to account for the time-dependence of the options' sensitivity to the underlying. We derive a preliminary analytical expression for the number of shares needed by adjusting the standard Black-Scholes-Merton \Delta quantity and present numerical results.
We examine the possibility of incorporating information or views of market movements during the holding period of a portfolio, in the hedging of European options with respect to the underlying. Given a holding period interval that is bounded below, we explore whether it is possible to adjust the number of shares needed to effectively hedge our position to account for views on market dynamics from present until the end of our interval , to account for the time-dependence of the options' sensitivity to the underlying. We derive an analytical expression for the number of shares needed by adjusting the standard Black-Scholes-Merton \Delta quantity , in the case of an arbitrary process for implied volatility, and we present numerical results.
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liquidation
the end of our interval
R
a preliminary
an
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and
, in the case of an arbitrary process for implied volatility, and we