# Tag Info

## Hot answers tagged hedging

4

Consider a dynamic hedging strategy where you invest $H_t$ in the stock at time $t$. To eliminate all risk, the value of the investment must be equal to the claim at time $T$. Using Ito's calculus, we could express $A_T$ as follows: $$A_T=\frac{T}{2}+\int_0^T 2W_t \left(1-\frac{t}{T}\right) dW_t=\frac{T}{2}+\int_0^T H_tdW_t$$ Thus the strategy would be to ...

3

This is, of course, a very old play. The main thing that gets in the way of trading it is that puts are rarely available in a quantity that matches typical credit instrument notionals. Here's a decent paper by Peter Carr on the topic, see equation (4) and surrounding.

2

This is going to vary country by country, since securities laws can differ quite a bit when it comes to securitizing. That is largely governed by the relevant accounting rules which outline what assets you can take off your books. Without a majority transfer of risk, the asset typically can't(and shouldn't) be securitized. Securitization is very ...

2

You may not be able to reduce a position. Either because there is no liquid markets (for exotic and less transparent derivatives markets) or your position is to big to reduce at once (if you take on big positions versus an institutional client (e.g., pension fund) you may not be able to go to the market to reduce it all). Plus, the whole point of trading is ...

1

Strictly speaking a vanilla swap is not really a derivative instrument, and vanilla swaps are often considered linear products. Having said that, there are a host of non-standard swap contracts on a myriad of underlying contingent assets which would make the swap qualify as a derivative non-linear instrument. Short answer is that it completely depends on ...

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