| Financial Derivatives Toolbox | |
Hedging Functions
The Financial Derivatives Toolbox offers two functions for assessing the fundamental hedging tradeoff.
The first function, hedgeopt, addresses the most general hedging problem. It allocates an optimal hedge to satisfy either of two goals:
hedgeopt allows investors to modify portfolio allocations among instruments according to either of the goals. The problem is cast as a constrained linear least-squares problem. For additional information about hedgeopt see Hedging with hedgeopt.
The second function, hedgeslf, attempts to allocate a self-financing hedge among a portfolio of instruments. In particular, hedgeslf attempts to maintain a constant portfolio value consistent with reduced portfolio sensitivities (i.e., the rebalanced portfolio is hedged against market moves and is closest to being self-financing). If hedgeslf cannot find a self-financing hedge, it rebalances the portfolio to minimize overall portfolio sensitivities. For additional information on hedgeslf see Self Financing Hedges (hedgeslf).
| | Hedging | Hedging with hedgeopt | |