Continuous dynamic hedging can eliminate all risk, not just systematic risk.

Evidence

“I looked at this thing,” says Merton, “and I realized that if you did … dynamic trading … if you actually [traded] literally continuously, then in fact, yeah, you could get rid of the risk, but not just the systematic risk, all the risk.” Not only did the hedged portfolio have zero beta in the continuous-time limit (Merton had initial doubts on this point but they were assuaged), “but you actually get a zero sigma” that is, no variance of return on the hedged portfolio (Merton interview). — Donald MacKenzie, An Engine, Not a Camera, 599

Categorization

• DEEPTHINKING: The claim that trading literally continuously eliminates all risk — total, not merely systematic — is the audacious conceptual core on which the entire Black-Scholes edifice rests, and it remains philosophically contested.
• XREF: connects to: Continuous trading makes the hedged portfolio riskless, anchoring it to the riskless rate. — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 600; Insurance shifts from mitigating risk to eliminating it via continuous monitoring — Shoshana Zuboff, The Age of Surveillance Capitalism, 668; Portfolio insurance designed to limit losses can amplify market volatility. — Shapiro, Susan P., The Social Control of Impersonal Trust, 144

Broader Connections

• Continuous trading makes the hedged portfolio riskless, anchoring it to the riskless rate. #corroborates (0.95) — Donald MacKenzie, An Engine, Not a Camera, 600
• Portfolio insurance designed to limit losses can amplify market volatility. #qualifies (0.80) — Shapiro, Susan P., The Social Control of Impersonal Trust, 144
• Insurance shifts from mitigating risk to eliminating it via continuous monitoring #expands (0.70) — Shoshana Zuboff, The Age of Surveillance Capitalism, 668