Calculated Hedging is a systematic risk management strategy where offsetting positions are established based on quantitative models to mitigate potential losses from existing market exposures. Its purpose is to stabilize portfolio value and reduce downside risk against adverse price movements in underlying assets. This is fundamental for managing derivatives risk.
Mechanism
This mechanism involves the continuous computation of risk metrics, such as delta for options contracts or direct price correlations for spot assets, to determine the appropriate size and type of hedge instruments. Automated systems execute these hedging trades in response to market changes, portfolio rebalancing requirements, or shifts in asset volatility.
Methodology
The methodology relies on a robust quantitative framework to determine optimal hedge ratios and instrument selection. It incorporates principles of financial engineering and statistical analysis to manage market risk systematically. This approach ensures hedge positions adapt to evolving market conditions, particularly relevant in the dynamic and interconnected crypto derivatives landscape.
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