How to hedge Europan option with American option?

rock31 · July 18th, 2006, 12:21 pm

Someone asked me how to hedge European option with American option. I have no idea. I wonder eveb if this is practical.So, I restate the question here hope some can give me good explanation. Thanks alot. R

macca9 · July 18th, 2006, 1:29 pm

You couldn't use an American option to statically hedge a European option, because it has unknown maturity (unless one assumes rational markets and it is an American call with no dividends before expiry).However, regardless of the "type" of option, you can still dynamically hedge these instruments on the greeks.Hope this helpsM

rock31 · July 18th, 2006, 1:31 pm

MaccaThank alot. It does help. R.