Static Options Replication for a Portfolio of American Options on a Stock

question 17

Multiple Choice

Static options replication for a portfolio of American options on a stock involves

• A) Finding a hedge portfolio to match daily changes
• B) Finding a hedge portfolio to match values on a boundary that is certain to be reached
• C) Finding a hedge portfolio to match values at one particular time
• D) Constructing a hedge taking both gamma and delta into account

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Definitions:

Accrued Expenses

Expenses that have been incurred but not yet paid or recorded in the company's accounts.

Trade Magazine

A publication focused on a specific industry or profession, often containing news, trends, and articles of interest to those in the field.

Subscription Revenue

Income generated from customers who pay recurrently for access to a product or service over a subscription period.

Insurance Expense

The cost incurred by a business to purchase insurance, which provides financial protection against losses.