Static Hedging

Robert Jarrow ()

Chapter 14 in The Economic Foundations of Risk Management:Theory, Practice, and Applications, 2017, pp 107-113 from World Scientific Publishing Co. Pte. Ltd.

Abstract: Static hedging is the reduction in a portfolio’s risk by using buy and hold trading strategies composed of existing traded assets and derivatives. Static hedging can also sometimes be used to synthetically construct derivatives and identify arbitrage opportunities. This section illustrates risk management using static hedging by studying various examples.We assume frictionless and competitive markets in this chapter. Frictionless means that there are no transactions costs and no trading constraints, e.g. short sale constraints or margin requirements. Competitive means that all traders act as price takers, believing that there trades have no quantity impact on the price.

Keywords: Risk Management; Derivatives; Value-at-Risk; Funding Risk; Financial Engineering (search for similar items in EconPapers)
JEL-codes: G31 (search for similar items in EconPapers)
Date: 2017
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