A static hedge is one that does not need to be re-balanced as the price of other characteristics such as volatility of the securities it hedges change. This contrasts with a dynamic hedge that requires constant re-balancing.

A simple example of a static hedge is a future that is used to hedge a position in a foreign currency. Once the future is in place the foreign exchange risk is entirely eliminated. Leaving aside counter-party risk and similar problems, the portfolio the foreign exchange position plus the future is entirely risk free. A static hedge how to be a stockbroker in canada likely not to last indefinitely.

Most hedged static hedging barrier option contains securities that will expire or mature. At that point a the hedge will need to be adjusted or re-constructed.

Static hedge - Investment strategies - Moneyterms: investment, finance and business explained

Unlike a dynamic hedge, this happens occasionally at comparatively long intervals. Static hedges can be much more complex than the simple example above: A dynamic hedge is sometimes required: Like a dynamic hedge, a static hedge may be reversed to replicate the static hedging barrier option flows of a security.

Duality in static hedging of barrier options: Optimization: Vol 58, No 3

By the law of one pricethis also implies the value of the security in question, just as the value of a dynamic hedge can be used to derive the Black-Scholes model. Static hedge A static hedge is one that does not need to be re-balanced as the price of other characteristics such as volatility of the securities it hedges change. Static hedges need to be perfect, but, without the risks attached to re-balancing, they can be.

Hedge Market neutral Arbitrage Put-call parity Future Contract for difference.