Hedge ratio: Difference between revisions
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The proportion of a hedging instrument required to hedge an underlying position, compared with the amount of the underlying position itself. | The proportion of a hedging instrument required to hedge an underlying position, compared with the amount of the underlying position itself. | ||
the | '''Example''' | ||
If four options are required to hedge a position of one unit of the underlying asset: | |||
Hedge ratio = ¼ | |||
= 0.25. | = 0.25. | ||
Revision as of 15:21, 16 March 2015
The proportion of a hedging instrument required to hedge an underlying position, compared with the amount of the underlying position itself.
Example
If four options are required to hedge a position of one unit of the underlying asset:
Hedge ratio = ¼
= 0.25.
