LOS 30 e: Pg 201
Delta hedging a derivative position means combining the option position with a position in the underlying asset to form a portfolio, whose value does not change in reaction to changes in the price of the underlying over a short period of time. The value of that portfolio should grow at the risk-free rate over time, as it is dynamically managed.
Schweser book 4
LOS 29a Pg 140
It is also worthwhile to point out a basic relationship that underlies what we are doing when we replicate synthetic “cash.” We take a short position in futures to offset the risk in a long position in equity. This can be represented as follows:
synthetic risk-free asset= long stock- stock index futures (i.e., short position
Can anyone please explain what is the difference between both of the above techniques as the result is the same in both, which is risk free rate.
Thank you