Mark Washington, CFA, is an analyst with BIC. One year ago, BIC analysts predicted that the U.S. equity market would most likely experience a slight downturn and suggested delta-hedging the BIC portfolio. As predicted, the U.S. equity markets did indeed experience a downturn of approximately 4% over a 12-month period. However, portfolio performance for BIC was disappointing, lagging its peer group by nearly 10%. Washington has been told to review the options strategy to determine why the hedged portfolio did not perform as expected. Which of the following best explains a delta-neutral portfolio? A delta-neutral portfolio is perfectly hedged against:a. Small price changes in the underlying asset.b. Small price decreases in the underlying asset.c. All price changes in the underlying asset.
Mark Washington, CFA, is an analyst with BIC. One year ago, BIC analysts predicted that the U.S. equity market would most likely experience a slight downturn and suggested delta-hedging the BIC portfolio. As predicted, the U.S. equity markets did indeed experience a downturn of approximately 4% over a 12-month period.
However, portfolio performance for BIC was disappointing, lagging its peer group by nearly 10%. Washington has been told to review the options strategy to determine why the hedged portfolio did not perform as expected.
Which of the following best explains a delta-neutral portfolio? A delta-neutral portfolio is perfectly hedged against:
a. Small price changes in the underlying asset.
b. Small price decreases in the underlying asset.
c. All price changes in the underlying asset.
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