[Think of it as insurance. When people decide to hedge, they are insuring themselves against a negative event. This doesn't prevent a negative event from happening, but if it does happen and you're properly hedged, the impact of the event is reduced. So, hedging occurs almost everywhere, and we see ...

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1answer
48 views

Hedging using relative values

Consider I have two stocks $A$ and $B$, $A$ is trading at $\$40$ and $B$ at $\$30$. The standard deviation of its returns are $\sigma_A=25\%$ and $\sigma_B = 30\%$. Correlation between the returns is ...
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1answer
77 views

Can you hedge a derivative with a CASH|spot product or does it have to be another derivative instrument

Consider you have a SWAP (any kind) to hedge this SWAP, you will most likely use another Derivative,but can you use a cash|spot product to hedge this. Like Cash Equity or FX Spot
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0answers
37 views

Hedge volatility decreases

My particular options positions are typically a long delta, and long vega. Decreases in implied volatility, or specifically the VIX, can drastically alter the profitability of my position. Is there a ...
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1answer
401 views

Hedging a Long Equity Swap by Shorting the Stock

Suppose that I enter an Equity Swap, such that I pay a floating rate and I receive the equity return. The payment is every one year for both the rate and the return, and the swap expires in one year. ...
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0answers
44 views

Existence of a hedging portfolio and martingale property

Lets assume that the underlying follows a Brownian motion and the market has the standard properties of the Black Scholes setting. Is there a way to find a hedging portfolio for every discounted ...
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0answers
62 views

Calculating the Hedge Ratio

Suppose we have an index whose value is calculated by a weighted geometric mean. Now we want to recreate the index using its underlying components. How would we go about calculating the hedge ratios ...
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0answers
162 views

Market Exposure and Hedging

Normally the Market exposure associated with your stock/portfolio is your delta for that stock/ portfolio. Basic idea of hedging involved here is buying/selling respective futures depending upon ...
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0answers
306 views

Delta-Omega Hedging [closed]

I am currently trying to understand the in's and out's of options and more specifically hedging. I came across a document that was talking about Delta Hedging which is just making sure the delta of ...
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1answer
510 views

Why is delta-hedging of ATM options near expiry difficult to do? [closed]

Can someone explain to me why the delta-hedging of ATM options near expiry is difficult?
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1answer
67 views

Implication of the Greeks under jump diffusion model

Consider jump diffusion model proposed by Merton and Kou. As far as i know, most paper only dealt the valuation of option under the jump diffusion model. As i expected, because of the ...
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1answer
170 views

Hedging future USD cost using different IR and forwards

I am facing a problem where I suppose an expense in 6 months from now of 2,500USD. My home currency shall be EUR, and I am trying to hedge given the following information. ...
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1answer
130 views

Intuitive understanding of Black-Scholes pricing

The Black-Scholes formula entails market completeness, so the price of an option is only the cost associated with dynamically hedging the option. Where does this cost come from? I don't see how ...
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3answers
202 views

hedging with known volatility

Suppose we have a stock $X$ at which trades at 100 dollars. We suppose the stock follows a geometric brownian motion. We know that the interest rate is zero and annual volatility is 10 percent. How ...
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0answers
29 views

Urgent help needed : Spot price - future price relationship [on hold]

Historic market (Cash) prices and future contract prices are available for last 4 years. I have found correlation between Jan'11 market price with Jan'11,Feb'11 and March'11 future contract prices ...
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0answers
18 views

How to understand the upward trend of currency hedged euro/japan equity ETF

The quantitative easing implemented in Euro zone & in Japan has resulted in two outcomes Massive inflow of money into market that raised the stock index, and The weakening of euro/yen compared ...
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0answers
15 views

How to optimally hedge construction loans with interest rate swaps?

We are a borrower with a construction loan that is pay floating. At the inception of the loan, we entered into a pay-fixed/receive-floating interest rate swap with a growing notional profile that ...
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0answers
44 views

Self-financing strategy in the Hull-White bond model

I am having troubles with solving a particular problem concerning the self-financing portfolio in the Hull-White model (dr={phi(t)-ar}dt+sigmadW). Consider an expiry-T_0, Strike-K cll-option on a ...
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0answers
19 views

If you knew market’s expected spot rates, could you deduce if there is a forward-risk premium?

Suppose that you were importing small electric transformers, that delivery from all suppliers would take approximately 6 months, and that you faced the situation shown in the table below: The Table ...
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0answers
35 views

Variance of “hedged” term structure portfolio increasing?

I'm attempting to use PCA to hedge a small fixed income portfolio. I start with one particular bond and chose the nearest other bond to hedge the 1st principle component. This decreases the portfolio ...
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0answers
86 views

hedging an equity portfolio against an index

I am trying to run a simple back test on a M&A strategy. The idea is to buy the target company for the length of the deal and obviously hope to see a profit. The weight given to each deal is ...
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0answers
24 views

How should I achieve cross-hedging?

I am Airliner.I want to protect my business from price volatility of jet fuel cost.Jet fuel is not traded in futures market but Crude oil is traded in futures market. I have daily spot prices of jet ...
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2answers
288 views

BS and delta hedging questions

I have two related questions concerning Black Scholes and delta hedging. I thought about this two questions, but I could not come up with an answer, so maybe you guys & girls can help me: If an ...