To assess the performance of a hedging strategy (i.e. delta hedging), we look at the ratio of the standard deviation of the cost of writing the option and hedging it to the theoretical price of the option. An example of this performance measure is displayed below: Time between 5 0.5 0.25 hedge rebalancing (weeks) Performance 10.42 |0.38 0.28 0.21 0.16 0.13 measure (a) Why do we use this as a performance ratio? (b) Why can this performance measure not be reduced to zero? To assess the performance of a hedging strategy (i.e. delta hedging), we look at the ratio of the standard deviation of the cost of writing the option and hedging it to the theoretical price of the option. An example of this performance measure is displayed below: Time between 5 0.5 0.25 hedge rebalancing (weeks) Performance 10.42 |0.38 0.28 0.21 0.16 0.13 measure (a) Why do we use this as a performance ratio? (b) Why can this performance measure not be reduced to zero