Dynamic gap and Dynamic hedging: Difference between pages

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''Banking''.
''Options trading and hedging.''
 
Dynamic hedging recognises that the hedge ratio depends - among other things - on the current market price of the underlying asset.
A mismatch in the timing at which interest rate assets and liabilities are likely to reprice based on all of:
 
*Their contractual terms; and
*An assessment of customers' and the bank's expected behaviour; and
*The recognition that the behavioural assumptions are themselves functions of other factors, including the interest rate change itself.
 
 
Dynamic gaps are a refinement of behavioural gaps.


So that as the underlying market price changes, the amount of the hedging instrument held needs to be adjusted dynamically, in line with the changing hedge ratio.


== See also ==
== See also ==
* [[Behavioural gap]]
* [[Hedge ratio]]
* [[Contractual gap]]
* [[Market price]]
* [[Gap report]]
* [[Interest gap report]]
* [[Interest gap]]
* [[Liquidity gap]]


[[Category:Identify_and_assess_risks]]

Revision as of 14:19, 23 October 2012

Options trading and hedging. Dynamic hedging recognises that the hedge ratio depends - among other things - on the current market price of the underlying asset.

So that as the underlying market price changes, the amount of the hedging instrument held needs to be adjusted dynamically, in line with the changing hedge ratio.

See also


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