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Two single wave pulses are sent along a rope. Both have the same height, but one is upward and the other is downward. As they are passing through each other, they will momentarily cancel each other out. What becomes of their energy as they are passing through each other?
Underlying Asset
The financial asset upon which a derivative's price is based, such as stocks, bonds, commodities, or currencies.
Hedge Ratio
The proportion of a position which is hedged, representing a strategy to minimize the risk of adverse price movements in an asset.
Binomial Option Model
A numerical method used in finance to price options by breaking down the option’s life into discrete time intervals.
Dynamic Hedging
A portfolio management strategy that involves continuously adjusting the hedge positions as the market conditions and prices of the underlying assets change.
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