[JPT III]

[ QUOTE ]


The first half of the full hedge gives you 3/4 of the value, while the last half gives you 1/4 of the value. So, in some sense, the last half is 3 times as expensive as the first half.

[/ QUOTE ]

This thread is kind of intriguing to me, although I hate seeing my 2+2 brethren argue over this kind of thing. OP, could you elaborate on the above quote from your original post? I understand the concept of your post (i.e., that a risk aversion that requires a hedge does usually not call for a full hedge) and I agree (or did I misunderstand?). I'm not sure exactly what you mean by the above quote however. How did you arrive at the 1/4 and 3/4 figures? (or where you choosing convenient figures to get a point across?)

Also, in the above quote, when you speak of "1/4 of the value" -- don't you mean "1/4 of the utility"? (as in "benefit"?). After all, I think we agree that one gains no actual "value" by hedging, but rather derives "utility" from reducing one's risk through a hedge. If additional action on the Pitt game added value, it wouldn't be a hedge, it would be arbitrage.

Anyways, I don't mean to be annoyingly technical with your word choice but rather inquire for my own edification. And I'd love to hear from you on how you arrived at the 1/4 and 3/4 figures referenced above.