A Portfolio Approach to Risk Reduction in Discretely Rebalanced Option Hedges

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Antonio S. Mello; Henrik J. Neuhaus;
  • Journal: Management Science,volume 44,issue 7 July,pages921-934
  • Related identifiers: doi: 10.1287/mnsc.44.7.921
  • Subject: Option Pricing, Discrete Rebalancing, Market Efficiency, Transaction Costs

This paper analyses the accumulated hedging errors generated by discretely rebalanced option hedges. We show that simple generalizations of the prior research can underestimate the variance of the accumulated hedging errors and that even with daily rebalancing, these ac... View more
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