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Derivatives and Risk Management by Ranganatham Ranganatham, Madhumathi Madhumathi

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chapter 19

Measuring Risk Characteristics of Derivative Instruments

Learning Objectives

After reading this chapter, you will be able to understand

  • derivative Greeks and their use in measuring risks
  • risk mapping
  • risk neutrality
Chapter Outline

19.1 Introduction

19.2 Derivative Greeks

19.3 Delta Hedging

19.4 Gamma Hedging

19.5 Delta–Gamma Hedging

19.6 Vega Hedging

19.7 Delta–Gamma–Vega Hedging

19.8 Theta Hedging

19.9 Delta, Gamma, Vega, Theta Hedging

19.10 Rho Hedging

19.11 Delta, Vega, Rho Hedging

19.12 Derivative Instrument Risk Management

THE SITUATION

During the financial crisis of 2007–08 in the United States, insurance companies used credit default swaps, a derivative instrument to protect investors holding mortgage-backed securities. ...

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