Dynamic Hedging Strategies Applied by Banks for Short Positions in Currency Options
On the Polish market there are two ways of hedging short option positions by banks, that is taking the opposite position in a similar option or a so called delta-hedging which means buying the appropriate amount of the underlying asset. The first one is the example of the static hedging, so it will not be discussed in the paper. The most popular way of hedging short option positions is delta-hedging. It was proposed by Fisher Black and Myron Scholes. It is based on the construction of the risk-free portfolio that consists of an option and the proper amount of an underlying asset that will compensate for losses generated on the option. (fragment of text)
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