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(1) To buy back instruments previously sold. Typically used to describe the closing of a short position. (2) A hedge position purchased from a third party to offset the market risk of a derivative issuance or OTC risk management agreement. For example, many investment banks purchase cover for the option components of equity or index-linked instruments from one or more of the major financial intermediaries specializing in these products. (3) Collateral behind a security or obligation. (4) The contingencies for which an insurance company is liable under the terms of a policy.
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