Dynamic hedging can be performed by using stock and risk-free debt to achieve portfolio insurance by setting the delta of the stock-debt combination to the delta of a combination of stock and puts.

Question

Quizplus · Accepted Answer

This statement is true. Dynamic hedging involves adjusting the portfolio's exposure to changes in the stock price by using a combination of stock and risk-free debt. By setting the delta of this combination to the delta of a combination of stock and puts, the portfolio can be insured against large losses.

Dynamic Hedging Can Be Performed by Using Stock and Risk-Free