Would even 2-dimensions fail miserably?About hedging against an index, that's not even possible often. What if the derivative is against a commodity and a currency? There is no index for that.

<t>QuoteOriginally posted by: PaulThe theory is easy. Surely it's just an 'exercise' after you've learned about Ito in higher dimensions?The practice is horrible. Anything with correlation assumptions is unpleasant and dangerous.PSo no one actually does multi-dimensional hedging in practice? Strange...

How does one hedge derivatives with many underlying assets? Say derivative with two underlying stocks.All of my books seem to cover only derivatives of one underlying.

<t>Let's say I have to buy 2 barrels of crude oil and 1 tonne of iron every month to operate my business. I want to hedge myself against rises of the prices of these commodities (perhaps more for crude oil if I believe iron will be more stable than the oil).My question is: Is there any benefit of tr...

<t>Do grades matter much in the job market? How much do they matter?For instance, is a master's degree barely passed of much less worth to employers than a master's degree with straight A's?What about something there in between, like mostly B's or C's, some D's and E's and rare A's?I'm just wonderin...

<t>QuoteOriginally posted by: PaulSo there is something refreshing about sbura's insistence on this being 'just algebra.' But he is correct, it is just algebra. It will be interesting to see if this innocence gets corrupted!I hope this means I'm finally on the right track.I hope this will not get co...

<t>QuoteOriginally posted by: listThe initial step of the setting:"We start out with the binomial model of stock prices with r,p,q,u,d,S0 (p and q the real probabilities). Nothing wrong with that and it makes perfect sense. No magic there. It's just some simple model we choose to start with and that...

<t>Ok everyone. Just in case you forgot me, I started this thread Now, after reading the first chapter in Shreve Vol. 1, I finally believe I understand this more (if not completely). I believe this talk of philosophy and stuff is not really helping and just obscures the topic. Because, in my opinion...

<t>So, maybe it will just make my life easier to stop thinking about this damned (and apparantely non-existent) "expectation rule" and proceed as if I had no knowledge of such a rule? For some reasons it has been implanted into my brain that this rule must apply in the real world.Because basically m...

<t>QuoteOriginally posted by: HOOKQuoteOriginally posted by: sburaQuoteOriginally posted by: HOOKIt is not independent. $1.000.000.000*p+$0,5*(1-p)=$1. Assuming risk-free=0This means that p will be very small.Ah hmmmm. I should have thought of that. That partially explains it I think. Thanks for thi...

<t>QuoteOriginally posted by: HOOKIt is not independent. $1.000.000.000*p+$0,5*(1-p)=$1. Assuming risk-free=0This means that p will be very small.Ah hmmmm. I should have thought of that. That partially explains it I think. Thanks for this. This is some nice food for thought. But still, if the "expec...

<t>Up to this point, and he probably never will, Shreve has not (and neither do Hull, Wilmott, Bjork in their books) mentioned any dependence between p and r. Of course p and r have been introduced but no relation between them has been. r is assumed to be known in this theory. And in no way has the ...

<t>This doesn't explain a thing to me I'm afraid. Plus that doesn't intuitively help either. Probability is just probability. No need to write some fancy words about it in my opinion. Thanks for the reply though, and I hope for more replies!For your information, I'm reading Shreve Vol. 1, and he jus...

<t>I don't get why a call option's price can be independent on probability in the binomial model.Let's consider a simple case.A stock is currently worth $1. In one year it can go one of two ways: Up to $1,000,000,000 with probability p, or down to $0.5 with probability 1-p.I just don't get it. Why t...

Thanks for the replies everyone. Really appreciated.I am actually not talking about very high amounts. Maybe somewhere in the region of 200,000 USD.But you never actually mentioned particular banks. Which one would be good? HSBC? Barclays?