I am looking for info regarding pricing, and hedging (notably vega and delta) of derivatives on funds.
Could you please confirm/complete the below information I believe I've understood so far, or guide me to books/papers that could be of any help?
1- Delta hedging: since it is impossible to short funds, any derivatives sold on funds cannot be delta negative (otherwise, issuer is delta positive and would need to short) - is this true?
2- Vega hedging: no options on funds, so the only solution is to find a proxy for which listed options exist and use options on that proxy to try and hedge the vega exposure of the fund derivative. Is there any other way to proceed?
3- Exotic options/structured products: how would you hedge an exotic option on funds, let alone a structured product (ex Autocalls) on funds?
4- Pricing: are there specific pricing models favored for those types of underlying? If not, and using standard equity models such as Heston, would you price the derivative on the proxy and add some sort of spread to account for the fact that the proxy does not behave exactly like the underlying fund?
Many thanks in advance for your help