How do you replicate a call option

Blogs Recent Entries Best Entries Best Blogs Blog List Search Blogs. A call option can be replicated by buying shares of stock and borrowingsince by the Black-Scholes formula What does it mean to "replicate the option" in this paragraph?

I see that the the initial cost of the call is replicated, but the payoff of the call is not the same as the purchased stock and borrowed money. Noumenon84 View Public Profile Find all posts by Noumenon Originally Posted by Noumenon That is the reason why the market-maker needs to rebalance the position constantly- adjust the number of stock invested and the money borrowed.

Find all posts by sohpmalvin. So is the idea sorta that if I sell a call then buy shares of stock and borrow then I can hedge an increase in the call option due to an increase in stock price?

So it is the expected payoff we replicate rather than the exact payoff strategy of the option itself? Does this make sense? Last edited by Noumenon84; at Last edited by winvicta; at When you forex point zero to Delta hedging this will all make more sense.

Options Arbitrage

Originally Posted by win diesel. You have to take the third derivative of any of these stats to show Amoron is doing a good job.

Options Pricing: Put/Call Parity

Force of Interest View Public Profile Find all posts by Force of How do you replicate a call option. I just finished chapter 12 today and it did fill in the picture for me. MFE is turning out to be pretty strIght forward but computationally intensive.

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Jan Studying for FAP Find all posts by Noumenon Originally Posted by Noumenon84 In Section Find all posts by optimizer.

Singapore Studying for CIMA Favorite beer: It has been a while that I don't drink Originally Posted by Noumenon84 So is the idea sorta that if I sell a call then buy shares of stock and borrow then I can hedge an increase in the call option due to an increase in stock price?

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Replicating portfolio - Wikipedia

Originally Posted by win diesel You have to take the third derivative of any of these stats to show Amoron is doing a good job. Find all posts by Force of Interest. Originally Posted by Noumenon84 Thanks.

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