In the basic mean/variance framework, a stock's weight in effcient portfolios goes up if its expected rate of return goes up. In more complicated, realistic portfolio choice problems, surprising effects can occur.

We investigate how sensitive a variety of dynamic and static hedge strategies for barrier options are to model risk. We find that using plain vanilla options to hedge barrier options offers considerable improvements over usual ?-hedges. Further, we show that the hedge portfolios involving...

We review how reflection results can be used to give simple proofs of price formulas and derivations of static hedge portfolios for barrier and lookback options in the Black-Scholes model.