A micro-hedging solution developed by Kantox,
Dynamic Hedging, fully is claimed to automate FX risk management to create greater efficiencies for treasurers.
Three of its reporting lines,
Dynamic Hedging, Passive Hedging and Multi-Product contributed to the rise in assets.
and Sultan, J., 'Time-varying Distributions and
Dynamic Hedging with Foreign Currency Futures', 1993, Journal of Financial and Quantitative Analysis, vol.
Risk is tightly controlled via a
dynamic hedging strategy aimed at reducing the exchange rate risk.
Dynamic hedging is costly because of sharp delta increases during the option life and oscillations of gamma between fixing dates.
This form of tactical risk management doesn't use any excessively fancy derivatives -- it's just selling index call options, after all -- but, historically, it can and does generate alpha: Over the past 10 years, Gargoyle's
dynamic hedging strategy has produced an annual compound rate of return of 3.5%, compared with a passive options overlay rate of return of 1.6% (represented as the options component of the BXM, a Chicago Board of Exchange stock-and-option strategy index).
The hedging effectiveness is measured from the perspective of traders who want to minimize the uncertainty of their derivative positions via
dynamic hedging. To parallel the standard market practice of applying option-pricing models, we frequently recalibrate the models and focus on exotic options as the target options in the test procedure.