[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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0answers
294 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
433 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
53 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
120 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
195 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
5 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
9 views

Hedging bond with CDS of different maturity

Say I buy a 10-year bond with a notional of 100k. To hedge my credit risk entirely I could buy a 10-year CDS, also on a notional of 100k. Now, if there are only 5-year CDS trading and no 10-year CDS, ...
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0answers
65 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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2answers
274 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 ...