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Trading and Investment Terms

Dynamic Hedging Strategy

Dynamic hedging is a technique that is widely used by derivatives dealers to hedge gamma or vega exposures. 

Because it involves adjusting a hedge as the underlier moves often several times a day it is “dynamic.

 

 Dynamic hedging is very sensitive to volatility forecasts and good hedges require an accurate estimate of volatility.

 

Define

A strategy that involves rebalancing hedge positions as market conditions change; a strategy that seeks to ensure the value of a portfolio using a synthetic put option.

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