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Questions tagged [hedge]

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2
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0answers
30 views

Confused by Solution to the Expected Profit when Hedging an option using Implied Volatility (from Wilmott 2006)

Paul Wilmott on Quantitative Finance 2nd Ed (section 12.5.1) gives a solution to the initial expected profit when hedging using delta based on implied volatility as $$\frac{1}{2}(σ^2 - σ̃^2) \,\int_{...
3
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0answers
101 views

Usages of variance swap

I’m interested in variance swap. Considered from its feature, variance swap is used for betting the (historical) volatility of underlying asset. If we use it for hedge tool of Vega or Volga, does it ...
1
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2answers
96 views

Why do par-yield shifts grow faster across the curve than spot-rate shifts when looking at key-rates?

Consider the following 10y key-rate shifts of bond par yields and its implied shift of bond spot rates: Assume we have the key-rates for 2y, 5y, 10y and 30y. The y-axis is in basis points, and the x-...
0
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1answer
304 views

Long short equity hedge fund question

I have a question related to long short equity hedge funds. 1) What are some of the metrics used to perform risk analysis of long short equity funds on fund level? Volatility (standard deviation), ...
0
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0answers
81 views

ODR/TLS Regression Hedge Ratio

I want to be able to run a Total Least Squares regression using python to find a hedge ratio. I have the OLS hedge ratio function but can't figure out how to get the TLS version of it. def ...
1
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0answers
71 views

Min variance Hedge II

In a paper from Energy Risk - "Delta hedging the load serving deal", the author shows how to calculate the min variance hedge for a portfolio of two underlying assets. I've added a picture of the ...
1
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1answer
91 views

Hedging against exchange risk

How does one hedge against any exchange risk? A Japanese exporter has a €1,000,000 receivable due in one year. Detail a strategy using a money market hdege that will eliminate any exchange rate risk. ...
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0answers
54 views

Historical data for big old hedge funds

How can I get hedge fund data showing historical returns or closing prices for now private funds such as Soros' quantum, and Renaissance medallion?
2
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1answer
105 views

minimum variance hedge with stochastic processes

Problem set up: asset S: $$\frac{dS}{S} = \mu dt+\sigma dz$$ Hedged using a forward contract: $F = F(S,t).$ Hedge portfolio: $$P = S+nF$$ I want to find the variance of $dP$, and then minimize that ...
1
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0answers
71 views

What is the intuition to believe that a properly designed option can be dynamically hedged (just for the 1 stock case)?

I would always presume that the portfolio consists of 1 stock and 1 risk-free asset. And that the $r, \alpha,\sigma$ are all non-zero, but might be time-dependent. When I say "any" option, I am ...
2
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0answers
382 views

interview question : replication strategy of a betting game

Here is a question I found in a book I am not able to finish. Your help will be much appreciated! I also included where I have been so far. Q: Team A plays team B in a series of 7 games, whoever wins ...
1
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2answers
289 views

Two questions regarding cross-hedge

A company has to hold an underlying asset for one year and it is looking to use Brent Crude futures to hedge against changes in the underlying asset's price. Assuming there is no liquidity concerns ...
1
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0answers
66 views

Comparing Hedging Strategies

Say I am an American issuer, and I've issued some bond denominated in CAD. I've hedged the coupon by entering into an FX USD/CAD fixed for floating swap and I receive the fixed leg and pay floating, ...
0
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1answer
716 views

Calculating PCA hedge ratio for 3-leg spread

I'm wondering how can I find PCA hedge ratio for a 3-leg spread? I've taken the simple steps laid out in here. I've taken some treasury futures data for 2yr,5yr,10yr and ran the PCA. The first ...
3
votes
1answer
420 views

Deltas and CC Basis Swaps

How do I calculate the dollar impact of basis change for a portfolio of cross currency basis swaps which hedged loans/bonds? I am thinking it might have something to do with delta and tenors but I ...
2
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3answers
2k views

Credit Valuation adjustment (CVA) Hedges

I need to understand once CVA Desk has CVA number(Bilateral or Unilateral) for a Counterparty, how does it take hedge position. for Eg: if CVA charge for my bank to JPM is 100K Dollars. What does ...
2
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4answers
717 views

Bond portfolio hedging against currency risk

How do I hedge a bond portfolio against currency risk? Ideally I'm looking for books or other references on this topic.
3
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2answers
477 views

Why/How does a hedged portfolio make profits?

This is probably a very easy question but I am new to the field and couldn't find an answer. Assuming that I am building a hedged portfolio with a long option and going short delta on the underlying. ...
3
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0answers
114 views

Dynamic Hedging for a Bond

Sorry if this question is duplicate. Analyzing the scenario to hedge bond credit risk with CDS. but if Bond price changes CDS notional will not change. is there any way i can hedge this ?
-1
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1answer
201 views

Replicate by Arbitrage price of a forward

Given market(Mid): 1- USD Swap market (fixed for float). Float leg pays 3MLibor quarterly, act360. Fixed Leg pays annually, act360. Market is trading mid at 1.125%. 2- TIIE market. Fixed for ...
0
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0answers
1k views

Difference between “basic risk” and “basis risk”

Returning to Futures contracts, basic risk refers to the risk remaining after the hedge has been put in place and essentially represents the difference between the Futures price – should the ...
1
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1answer
2k views

How to hedge a forward contract

I was asked this in an interview and I messed it up lol. This might actually be really basic. Let's say I signed a forward contract to buy NASDAQ at 4000 one year from now. How can I hedge this cash ...
4
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0answers
380 views

pairs trading detrend the spread

I have calculated a hedge ratio that generates a mean reverting spread (stationary, without trends) 60-70% of the time. But the remaining 30% of the time, it seems like there is a trend in the spread. ...
13
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2answers
14k views

Why using 3 months forward to hedge fx risk on a fund of funds portfolio?

In my previous job, a fund of funds, they used 3 months forward FX contracts (renewed every 3 months) to protect their portfolio against currency risk. If I do understand why forwards are useful for ...
2
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1answer
175 views

Hedging differences between equity and index options?

Suppose we hedge an index option using futures on that index. How would the hedging strategy be different if the underlying could be traded directly (from a risk point of view)?
4
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1answer
215 views

Hedging with actual volatility: problem understanding the math behind the result

From this paper. page 3 We get that the total profit at expiration is the difference in value between the price of the option with actual volatility and the one with implied volatility. I have tried ...