1. Construct a MATLAB function to compute the hedging error of a portfolio with the delta hedging method for replicating a call or a put option, under the Black-Scholes model. The input values are:

• S: (n + 1) × N matrix of prices at times k nT , k ∈ {0, . . . , n}; the columns represents different trajectories. The rebalancing periods of the portfolio are k nT , k ∈ {0, . . . , n − 1}.

• K: strike price;

• r: annual risk-free rate;

• T : time to maturity (on an annual time scale);

• vol: annual volatility;

• put: 1 if put, zero if call;
Then, using the MATLAB function HedgingLI, try to replicate the results of Example 3.4.3.