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Answer: Requires frequent rebalancing
Static option replication is called "static" because it is intended to require little or no frequent rebalancing compared with dynamic hedging. The other statements are consistent with the concept: it can be used for many derivatives, the hedger may choose matching boundaries, and the exotic can be hedged using the replicating portfolio.
Author: Manit Arora
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Question 23.2 Each of the following is true about static option replication EXCEPT FOR:
A
Can be used for a wide range of derivatives
B
User has flexibility in choosing the matched boundary
C
The exotic is hedged by shorting the replicating portfolio
D
Requires frequent rebalancing
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