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A hedge is an investment position intended to offset potential losses or gains that may be incurred by a companion investment. A hedge can be constructed from many types of financial instruments, including stocks, exchange-traded funds, insurance, forward contracts, swaps, options, gambles, [1] many types of over-the-counter and derivative products, and futures contracts.
A hedge fund usually pays its investment manager a management fee (typically, 2% per annum of the net asset value of the fund) and a performance fee (typically, 20% of the increase in the fund's net asset value during a year). [1] Hedge funds have existed for many decades and have become increasingly popular.
Hedging is an investment strategy that is simple in concept but that can be difficult in execution. The primary uses of hedging strategies are to either lock in a profit or to protect against a...
Portfolio insurance is a hedging strategy developed to limit the losses an investor might face from a declining index of stocks without having to sell the stocks themselves. [1] The technique was pioneered by Hayne Leland and Mark Rubinstein in 1976.
A hedge is a kind of investment that offsets something else, but the rationale behind a hedging investment can differ depending on what exactly the investor intends to do.
Long/short equity is an investment strategy [1] generally associated with hedge funds.It involves buying equities that are expected to increase in value and selling short equities that are expected to decrease in value.
An investment strategy or portfolio is considered market-neutral if it seeks to avoid some form of market risk entirely, typically by hedging. To evaluate market neutrality requires specifying the risk to avoid. For example, convertible arbitrage attempts to fully hedge fluctuations in the price of the underlying common stock.
The CVA desk of an investment bank, whose purpose is to: hedge for possible losses due to counterparty default; hedge to reduce the amount of capital required under the CVA calculation of Basel 3; The "CVA charge". The hedging of the CVA desk has a cost associated to it, i.e. the bank has to buy the hedging instrument.