In several of the preceding chapters reference has been made to the use of options in creating special types of payoff profile. Indeed Chapter 1 provided an intuitive illustration of how a one-period collar could be established in the context of a short-term interest rate example, whilst in Chapter 2 long and short positions in puts and calls were presented as a means of hedging an index-tracking equity portfolio. This chapter builds on those examples and examines how other special types of option specification might be used to create similar payoffs in a less expensive manner.
KeywordsIncome Hull Arena Volatility Hedging
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