Questions tagged [hedge]

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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 ...
260 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 ...
4k views

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 ...
432 views

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. ...
1k 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. ...
422 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,...
204 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)?
865 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-...
582 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 ...
179 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 ...
139 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 ?
71 views

Why is the yield return preferred to the price return for selecting hedges for bonds?

For evaluating a hedge for a bond, I noticed that we often look at the yield return correlation between the two instruments, instead of the price return. Why is that? To me, the price would make more ...
187 views

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 ...
865 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.
213 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 ...
180 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": $$\Delta(t) = c_x(t, S(t)) \text{ for all } t \in [0, T)\text{.}\tag{1}$$ ...
450 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 ...
156 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 ...
94 views

248 views

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, ...
124 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?