Taking a portfolio perspective on option pricing and hedging, we show that within the standard Black …) hedging the total risk of each option separately, the correct hedge portfolio in discrete time eliminates linear (delta) as … indefinitely. This ties the literature on option pricing and hedging closer together with the APT literature in its focus on …

approximation is viable in practice: for options with implied volatility less than 95% and maturity less than three years, which …

allows us to rewrite the hedging portfolio explicitly in terms of the Malliavin derivative of the discounted payoff. We … illustrate this new result with two applications. Firstly, we obtain a closed-form expression for the hedging portfolio of a …