Dynamic hedging

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Dynamic hedging

A strategy that involves rebalancing hedge positions as market conditions change; a strategy that seeks to insure the value of a portfolio using a synthetic put option.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Dynamic Hedging

An investment strategy in which one reduces risk by taking various positions in put options according to changing market conditions. For example, one may buy a put to hedge risk to one security in a portfolio thought to be particularly risky at one time, and then sell that put and buy another when matters change.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
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References in periodicals archive ?
Nalholm, and R Schwendner, 2006, "Static versus Dynamic Hedges: An Empirical Comparison for Barrier Options," Review of Derivatives Research 9, 239-264.
In the second scenario, dynamic hedging strategies used by option writers produce selling pressures that impair market liquidity and amplify price declines, and, in the event, render the dynamic hedges ineffective.
Had all investors involved in portfolio insurance found it possible, and desirable, to satisfy their demand for "insurance" by buying puts instead of relying on dynamic hedges, the market would have had more information about the intensity of investor concern about a downside move.

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