/biz/ - Business & Finance

>>17116212
Right. So if I want to gain exposure to the fictional index of SPY (SEK), that is S&P 500 * SEKUSD, I can kind of do this by delta hedging.

The ideal asset should go up 1% if S&P goes up by 1%, 1% if SEKUSD goes up by 1%, and ~2% if both go up by 1%.

So if my delta for S&P is 1 and my delta for SEKUSD is 1%, I have replicated it.

(Except it both go up, because I haven't hedged gamma)

Are there any pitfalls?