hi there
i've recently started to learn the derivative market from hull.7 ed and there is some problem huanted here
1 what is the reasoning behind the "tailing the hedge" (page 58) ,i was wondering if this is just for practical usage or something else
2 i 've learned that index future can be used to hedge the risk associatied with " well diversified portfolio " , why it must be a well diversified one rather than whatever porfolio i may get?(page 60)
3 i have noticed (page 212)the convergence for the price of american call towards its payoff as the spot price of underlying increased .is it because of the reason that the intrinsic value of the call is the over-whelming part of the whole fair value in ralation to the value of right to choose whether or not to excersise at maturity.in other word , the latter is so small and can thus be ignored?
4 can somebody reconmmend me of some reference book about the mathmetics behind the derivetives which u think might benefit to the beginners ,u know ,sometimes i kinda confused about the equtions in the book