In volatile markets, dynamic hedging may be difficult to implement because
A) prices move too quickly for effective rebalancing.
B) as volatility increases, historical deltas are too low.
C) price quotes may be delayed so that correct hedge ratios cannot be computed.
D) volatile markets may cause trading halts.
E) All of the options are correct.

Question

Quizplus · Accepted Answer

Dynamic hedging in volatile markets faces challenges such as rapid price movements that hinder effective rebalancing, outdated historical deltas due to increased volatility, delayed price quotes affecting the computation of correct hedge ratios, and potential trading halts caused by the volatility.

In Volatile Markets, Dynamic Hedging May Be Difficult to Implement