One of the most interesting things about financial engineering is that it’s not just another domain. On top of all the problems associated software engineering, financial engineers also have to deal with the problems of their traditional home ground. I.e. have to fix real financial problems.
To find to optimal hedging ratio involves a couple of steps. Next week I want to take my students through the motions. To demonstrate the effect correlation of the underlying assets has on a hedging strategy a stylised model is considered. Therefore I thought it would be worth to write up my notes and stick it on the website.