1. Nicole Seaman

    P2.T5.22.15. Fixed income regression and principal component analysis (PCA)

    Learning objectives: Calculate the face value of multiple offsetting swap positions needed to carry out a two-variable regression hedge. Compare and contrast level and change regressions. Describe principal component analysis and explain how it is applied to constructing a hedging portfolio...
  2. Nicole Seaman

    P1.T3.21.13. Using futures to hedge

    Learning objectives: Define and differentiate between short and long hedges and identify their appropriate uses. Describe the arguments for and against hedging and the potential impact of hedging on firm profitability. Define and calculate the basis, discuss various sources of basis risk, and...
  3. C

    Beta and Hedge Ratio

    Hi all, I couldn't find a relevant thread on this, but apologies if this has been asked before - I've got myself in to a bit of a quandary around the calculation of "beta", or as we know, the slope of the regression line, for instance between an asset and the hedge. The typical methodology I...
  4. R

    Key rates defined in terms of par yields infer the hedge position

    Hi David On page 170 of VRM, GARP says that when key rates are defined in terms of par yields, one can immediately calculate the position necessary to hedge a portfolio once the exposure of the portfolio to the key rates are calculated. I think I am struggling to see why all the changes in...
  5. Nicole Seaman

    P1.T1.20.4. Risk appetite and hedging (Chapter 2)

    Learning objectives: Compare different strategies a firm can use to manage its risk exposures and explain situations in which a firm would want to use each strategy. Explain the relationship between risk appetite and a firm’s risk management decisions. Evaluate some advantages and disadvantages...
  6. N

    Optimal hedge ratio with futures which expire later than holding period

    Write down the optimal hedge ratio equation for a stock portfolio and use the information provided to solve the hedging problem. Assume a fund manager has a £5 million portfolio of shares with a beta risk of 0.87. Price risks are apparent in a two –month holding period horizon. The only front...
  7. Nicole Seaman

    Carol Alexander | Market Risk Analysis, Pricing, Hedging & Trading Financial Instruments (Volume III)

    Pricing, Hedging, and Trading Financial Instruments forms part three of the Market Risk Analysis four-volume set. This book is an in-depth, practical and accessible guide to the models that are used for pricing and the strategies that are used for hedging financial instruments, and to the...
  8. Nicole Seaman

    YouTube T4-19: Hedging (aka, neutralizing) option delta and gamma

    To hedge options Greeks, we want to rely on the formula: +/- Quantity * %Greek = Position Greek, where a short position is represented by negative quantity. In this example, the market maker writes 10,000 ATM call options, each with percentage (per option) delta of 0.550 and gamma of 0.0440...
  9. Nicole Seaman

    P1.T4.908. Interest rate factors and the DV01-based hedge (Tuckman Ch.4)

    Learning objectives: Describe an interest rate factor and identify common examples of interest rate factors. Define and compute the DV01 of a fixed income security given a change in yield and the resulting change in price. Calculate the face amount of bonds required to hedge an option position...
  10. M

    hedging counterparty risk with credit derivatives

    Hi all, I have some doubt regarding this part in Gregory, chapter 4: "Hedging: Hedging counterparty risk with instruments such as credit default swaps (CDSs) aims to protect against potential default events and adverse credit spread movements. o Hedging creates operational risk and additional...
  11. C

    Tuckman, Chapter 6: Empirical Approaches to Risk Metrics and Hedging

    Hi, What is intuition behind the negative sign before the notional amounts? In calculations we seem to disregard the negative? Thank you
  12. Nicole Seaman

    P1.T3.710. Long and short hedges (Hull Chapter 3)

    Learning objectives: Define and differentiate between short and long hedges and identify their appropriate uses. Describe the arguments for and against hedging and the potential impact of hedging on firm profitability. Define the basis and explain the various sources of basis risk, and explain...
  13. Nicole Seaman

    P1.T3.707. Hedging versus speculation (Hull Chapter 1)

    Learning objectives: Describe the over-the-counter market, distinguish it from trading on an exchange, and evaluate its advantages and disadvantages. Differentiate between options, forwards, and futures contracts. Identify and calculate option and forward contract payoffs. Calculate and compare...
  14. Nicole Seaman

    P1.T3.406. Hedging strategies

    Concept: These on-line quiz questions are not specifically linked to AIMs, but are instead based on recent sample questions. The difficulty level is a notch, or two notches, easier than bionicturtle.com's typical AIM-by-AIM question such that the intended difficulty level is nearer to an actual...