ECON 251: Financial Theory
Lecture 21 - Dynamic Hedging and Average Life. This lecture reviews the intuition from the previous class, where the idea of dynamic hedging was introduced. We learn why the crucial idea of dynamic hedging is marking to market: even when there are millions of possible scenarios that could come to pass over time, by hedging a little bit each step of the way, the number of possibilities becomes much more manageable. We conclude the discussion of hedging by introducing a measure for the average life of a bond, and show how traders use this to figure out the appropriate hedge against interest rate movements. (from oyc.yale.edu)
| Lecture 21 - Dynamic Hedging and Average Life |
| Time | Lecture Chapters |
| [00:00:00] | 1. Review of Dynamic Hedging |
| [00:09:15] | 2. Dynamic Hedging as Marking-to-Market |
| [00:19:55] | 3. Dynamic Hedging and Prepayment Models in the Market |
| [00:30:50] | 4. Appropriate Hedges against Interest Rate Movements |
| [01:05:15] | 5. Measuring the Average Life of a Bond |
| References |
| Lecture 21 - Dynamic Hedging and Average Life Instructor: Professor John Geanakoplos. Transcript [html]. Audio [mp3]. Download Video [mov]. |
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