Perfect dynamic hedging requires ________.
A) a smaller capital outlay than static hedging
B) less commission expense than static hedging
C) daily rebalancing
D) continuous rebalancing

Question

Quizplus · Accepted Answer

Perfect dynamic hedging requires continuous rebalancing to maintain a delta-neutral position, which involves adjusting the hedge as the underlying asset's price changes to avoid delta exposure. Daily rebalancing may not be enough, as the price of the underlying asset can fluctuate throughout the day. A smaller capital outlay or less commission expense is not necessarily a requirement for perfect dynamic hedging.

Perfect Dynamic Hedging Requires ________