# Questions tagged [hedge]

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### Conversion Factor Weighted or Dv01 Weighted Treasury Futures Hedge

When trading the US Treasury Basis, why is a conversion factor weighted number of futures to your bonds the convention over DV01 weighted number of futures? why does one prefer the conversion factor ...
642 views

### How do banks hedge their FX TARF trades?

How do banks hedge their Target Redemption Forward trades? How effective are these hedges? How profitable are TARFs from the selling side ?
211 views

### Quantifying Costs/Benefits Of Partial Hedging

Say I sold a long-dated European put option and I want to analyze the costs and benefits of partial hedges in a world with stochastic price movements, rate movements, and volatility. For example, let'...
56 views

### Treasury Futures Roll Hedges

When you trade the US Treasury futures roll, why do you hedge with SOFR futures contracts for TU and FV and why do you hedge the stub (with SER futures weightings)?
149 views

### Minimum variance hedge ratio for currency hedging

The textbook formula for minimum variance hedge ratio (MVHR) is correl (Y,X) * (STDEV Y / STDEV X) However, I would like to reconcile the textbook formula with the ...
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### Producing hedge ratios via regression via returns and not price

I'm a quant student and I need someone to clearly and plainly explain to me better than my professor did about this topic. Please be patient if my question seems very basic. to find hedge ratios or ...
102 views

### Formula 4.10 in Volatility Trading by Sinclair

I'm reading "Volatility Trading" by Sinclair and am confused about formula 4.10. I hope someone of you can enlighten me :) What he's saying there is that he purchases a call option and wants ...
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### Pnl on delta hedged option

When we sell an option and we hedge it using Delta, we replicate the option payoff until maturity according to its Delta. If we replicate the option perfectly and with high frequency, we should be ...
84 views

### Simple Beta Neutral Intuition in Pairs of Two Assets

I'm having trouble understanding the intuition of a simple beta hedge using a linear regression. Assuming an asset has a beta of 0.5 against the market. That implies for a percent move in the market, ...
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81 views

### Why are we so focused on Zero Coupon Bonds?

In fixed income markets there seem to be two prevailing term structure modelling approaches: Market Models HJM Framework In Market Models, such as the LIBOR Market Model (LMM) and SABR it is common ...
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### Quantlib Vanilla Swap Amount not based on Forwards

I have the following code: ...
145 views

I see in BBG that the beta of XSPS (an inverse SP500 ETF) to SPX Index is -1.05 and the adjusted beta is -0.37. I get that -1.05 * 2/3 + 0.33 matches the adjusted beta. However, does this adjusted ...
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1 vote
226 views

### Uncorrelation between SP500 and USDJPY?

I'm planning to start a strategy on SP500 hedging losses on USDJPY, because USD usually goes the opposite of SP500. I'm also considering other symbols (USDCAD, USDCHF, USDX) I just took the charts of ...
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### hedge with implied volatility, PnL formula

Notations are consistent with this answer. Selling and delta hedging the option $V^i$ using the implied volatility $\sigma_i$ while the actual volatility of the underlying asset is $\sigma_r$. Then ...
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### Hedging Curve Risk with Futures

Please help confirm/correct my understanding of hedging curve risk using futures. For example, if I purchased a 9y bond and hedged the duration risk (parallel shift) by shorting 10y treasury futures ...
2k views

### How to get the weights for a beta neutral portfolio?

Given a ranking of 100 long stocks and 100 short stocks. Looking at these 200 betas: How can I find the optimal weights to get a beta = 0 long/short portfolio?
59 views

### Hedge 3 securities against 3 other securities

I have a portfolio of 6 securities, 3 long 3 short. I need to hedge them against each other so directional exposure = 0. How would I decide how to weight each security? Is there a model to do this?
411 views

### For what options does the "delta hedging rule" apply?

I'm reading Shreve's Stochastic Calculus for Finance, Volume II. In chapter 4, he derives the "delta hedging rule": $$\Delta(t) = c_x(t, S(t)) \text{ for all } t \in [0, T)\text{.}\tag{1}$$ ...
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597 views

### Conversion factor for futures hedging?

I had a question regarding conversion factors and treasury futures in the context of hedging for DV01. In my textbook, in order to calculate the hedge ratio they give this formula:  HedgeRatio= \...
1 vote
142 views

### SX5E option hedge

There are only quarterly contracts (3,6,9,12) for SX5E futures. In practice, how do we hedge SX5E option at expiry for non-quarterly contracts (say April)?
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### Hedge Fund Leverage - FX exposure

how is leverage calculated for hedge funds that follow a global macro strategy. Specifically interested in knowing the FX exposure- forwards or spots. If it’s just Longs+Shorts, then leverage would be ...
1 vote
213 views

### Hedge error - Willmot and Ahmad

I'm currently reading the paper: Willmot and Ahmad: Which free lunch would you like today, Sir? Delta Heding, volatility arbitrage. In case 1: They delta hedge with the actual volatility, by going ...
338 views

### Pros and Cons of SPY hedging strategies

Imagine someone bought 100K SPY as a long term investment. Now he wants to hedge against the downside risk of 10% or more. He is considering the following options: Buy UVXY which is a 1.5X VIX ETF ...
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159 views

### Market maker hedging model

I understand that most market makers maintain non directionality i.e. they always aim to be perfectly hedged. So if they take a long position in X, they will take an offsetting short position in a ...
882 views

### how do traders typically hedge a callable zero coupon bond?

i've seen termsheets of callable accreting notional swaps where the accretion rate equals the fixed coupon rate. apparently these are used to hedge callable zcb's. but it doesnt seem to make sense! ...
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I was just wondering if someone could explain to me how an ETF market maker earns profit through the spread they collect while hedging the positions to be non-directional. For example I read somewhere ...
1 vote
671 views

### Meaning of Rebalancing the Gamma in Options?

What does rebalancing the gamma mean? In the Book: Dynamic Hedging at the beginning says: Rebalancing the gamma corresponds to buying and selling the underlying security in order to replicate the ...
178 views

### Where can I find a current tail risk indicator?

The definition of tail risk (risk of 3-standard deviations movement) seems to imply there would be a current market indicator for this. Is there such an indicator available somewhere?
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### Structured Trade / Hedge consistency

I have a question regarding the marking consistency (from an accounting point of view) between bespoke structured trades and the listed instruments that may be used for their hedging purpose: Since ...
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### Gamma and Gamma Hedge [closed]

I have a very basic question: Is this gamma value has something to do with the gamma hedge? In delta hedge, it's done by buying/selling delta amount of underlying. But in textbook, for a put option, ...
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1k views

### IFRS9 hedge accounting - fx risk hedge with Cross currency swap with notional reset

My understanding is that notional resetable cross currency swaps (MTM CCS) are very common amoung interbank markets, and MTM CCS are often used to hedge fx exposure. However, the notional resettable ...
1k views

### Pricing of autocallable structured product

I'm looking at this paper: https://doi.org/10.1057/jdhf.2011.25, which is on pricing autocallable structured product. The author uses the Black-Scholes equation to describe the product's dynamic value,...
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### Hedge Active Duration by Issue Currency or Country of Risk

For example, lets say I own a bond issued by a company in Mexico that's denominated in USD and I want to hedge my duration exposure. I obviously need to hedge duration to the US yield curve. Do I ...
1 vote
103 views

### Minimum Variance Hedge Ratio and Risk Capital Relation

So I understand that the minimum variance hedge ratio minimizes the second moment of the portfolios. My question is how is it related to the size of the risk capital (which is calculated as the Value ...
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1k views

### Price adjustment of Black-Scholes delta and gamma for a quanto option

A quanto option is a derivative with the underlying and strike price denominated in one currency, but the instrument itself is settled in another currency. This has consequences for the calculation of ...
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1 vote
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### Hedge ratio with future contract [closed]

I want to buy some stocks and short future contract instead. I wonder whether I can calculate the hedge ratio?
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### Hedging with interest rate derivatives

This might be a stupid or basic concept for some of you, I'm new to the concept of hedging with interest rate derivatives, I understand how to hedge an equity portfolio but i'm struggling with the ...
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### Hedge performance in times of volatility: Beta changes impacting PnL during market rebound

I hedge a portfolio of Global Equities (200 stocks within MSCI World universe) by shorting futures on MSCI World Net Total Return. The hedge is calculated using Beta. Beta is calculated using a risk ...
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### How much to hedge if borrow in EUR to buy USD assets?

Suppose an investor borrows EUR1m to buy USD stocks. He wants to hedge away the currency risk through EURUSD futures. He should go long EURUSD to hedge this risk. The question is how much of EURUSD ...
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### Making portfolio Delta and Gamma neutral using 2 derivatives

We have an option portfolio with delta =2 and gamma 3 and we want to making this portfolio delta and gamma neutral using two derivatives D1 and D2: ...
1 vote
117 views

### Brownian motion Price and Hedge problem

Let $W_t$ be a Brownian Motion and let $S_t= S_0e^{(rt- \frac{\sigma^2}{3!}t^3 +\int_{0}^{t}\sigma W_s ds )}$ Price and Hedge at time $t=0$ European call with maturity $T$ and strike price $K$, ...
1 vote