Thursday, July 26, 2018

option pricing - How to hedge a derivative that pays the reciprocal of the stock price?


1) Suppose S is the stock price, how to hedge a derivative that pays 1/St at time t?



2) Suppose there will be a dividend of amount d between t and T, how to hedge a derivative that pays 100*ST/St at time T?


The person who asked me the question said we don't need to assume the distribution of S here.


Thanks!




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