Managing Risk with Options and Delta Hedging

Free CAIA Level II lesson in Risk and Risk Management. 24 min read, ~3,649 words.

Hedge systematic risk with, where for a broad index futures contract. Portable alpha ports a strategy's alpha onto a target beta using two futures: short the native beta and go long the benchmark beta. Put-call parity is; the hedged combination equals a riskless zero-coupon bond with face value equal to...

What this lesson covers

• Content
• Example 1
• Example 2
• Common Mistakes
• Check Your Understanding
• Exam Shortcuts

Learning objectives

• alpha systematic risk
• portfolio options
• delta hedging
• delta hedging observations
• mean reversion diversification
• hierarchy alpha
• types alpha
• risk premia betas
• manufactured alpha evidence
• benchmarking attribution overview
• single factor benchmarking
• multifactor benchmarking
• alt asset benchmarking
• benchmarking commodities
• benchmarking managed futures
• benchmarking pe
• peer group benchmarks
• benchmarking re
• margin collateral
• var managed futures
• other liquidity methods
• smoothed returns
• modeling smoothing
• unsmoothing hypothetical
• unsmoothing re data
• risk measurement overview
• risk aggregation
• info categories
• data freq daily weekly monthly
• data freq quarterly annual
• cybersecurity
• risk mgmt structure process

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