How Frequently Should You Consider Rebalancing the Options Hedge on a Large

question 22

Multiple Choice

How frequently should you consider rebalancing the options hedge on a large equity portfolio if you wish to maintain an effective hedge?

• A)weekly
• B)annually
• C)just prior to the fiscal year end
• D)at option expiration
• E)only when the options are in the money

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Definitions:

Real Interest Rate

The real interest rate adjusts the nominal interest rate to remove the effects of inflation, reflecting the true cost of borrowing or the real yield on savings.

Future Consumption

Refers to the use or purchase of goods and services at a future date, an important concept in economics related to saving and investment decisions.

Current Consumption

The total value of all goods and services consumed by households and individuals in the present time period.

Present Value

Today's value of future money or cash flow sequences, calculated using a certain rate of return.