Part E
Since Brown believes that the actual future volatility will be higher than implied volatility, she should use options hedging. She is confident that volatility will increase, and if she is correct, the value of the options will increase as volatilities rise.
Dynamic hedging, buying futures after rates have declined, and selling futures after rates have risen, is not appropriate when volatility is expected to rise. This approach would not benefit from the rise in the option’s value.
Dynamic hedging
是什么？老师没讲过吧？今年还要考吗？
