hedge ratio


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Hedge ratio (delta)

For options, ratio between the change in an option's theoretical value and the change in price of the underlying stock at a given point in time. For convertibles, percentage of a convertible bond representing the number of underlying common shares sold against the shares into which bonds are convertible. If a preferred is convertible into 2000 common shares, a 75% hedge ratio would be short (long) 1500 common for every 1000 preferred long (short). See: Delta.

Hedge Ratio

1. A ratio of the value of the proportion of a position that is hedged to the value of the entire position. A hedge ratio shows how exposed an investment is to risk. For example, if a hedge ratio is .65, then 65% of the investment is protected from risk, while 35% remains exposed.

2. A ratio of the value of a futures contract to the value of the underlying asset. This is used to identify and minimize risk in the contract.

hedge ratio

The number of options required to offset the change in value due to a price change in 100 shares of common stock. For example, if two options are needed to offset value changes for 100 shares of stock, the hedge ratio is 2.
References in periodicals archive ?
Because both TC and [OMEGA](t) are functions of the hedge ratio h, we can express MC as the ratio of the derivative of TC with respect to h (dTC/dh) to the derivative of [OMEGA](t) with respect to h (d[OMEGA](t)/dh).
We can see that, under all variants, there is significant variation using q-forwards (left-hand plot) in the hedge ratio over the range of reference ages.
1] From Equation (1), the MRM variance-minimizing hedge ratio estimate is the [beta] in the following OLS regression:
By modifying the conventional delta to a risk-neutral gamma-adjusted-delta hedge ratio, we demonstrate that to a large extent, a fund issuer can eliminate this expected total hedging errors, cut down their variability, and achieve a more precise period-to-period self-financing outcome.
Thus, the hedge ratio that maximizes the expected time to ruin is the variance-minimizing hedge ratio, [[beta].
Note that the distribution function, [xi] (*), does not depend on the hedge ratio, h.
The results indicate that a firm's hedge ratio is inversely related to the correlation between its cash flows and investment expenditures.
The ideal measure of derivative usage is the hedge ratio of the contracts entered into to manage risk exposures.
Table 4 gives standard deviations, correlations of both products, and the hedge ratio (i.
To hedge the exposure, a hedge ratio is selected that is consistent with the plan's risk/reward assumptions, diversification expectations and volatility comfort level.
If the hedge ratio for the gap, meaning the fraction ([beta]) of G that is covered through gap insurance, is unity, then the combination of index and gap insurance will form a perfect hedge, or full insurance.