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   Dynamic Hedging
   















 

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Dynamic Hedging

A technique of portfolio insurance or position risk management in which an option-like return pattern is created by increasing or reducing the position in the underlying (or forwards, futures, or short-term options on the underlying) to simulate the delta change in value of an option position. For example, a short stock index futures position may be increased or decreased to create a synthetic put on a portfolio, producing a portfolio insurance-type return pattern. Dynamic hedging relies on liquid and reasonably continuous markets with low to moderate transaction costs. See also Continuous Market, Delta Hedge, Delta/Gamma Hedge, Portfolio Insurance.

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