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Hedging with DV01

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Uploaded by on Mar 4, 2008

An example of using DV01 (dollar value of '01) to calibrate a hedge. Here, I assume we write $1 million in call options; as such, maybe we are worried about an interest rate decline. We can hedge by buying (going long) bonds. The DV01 can calibrate the hedge for us. But it is still crude as (i) duration is just an approximation and (ii) we have much basis risk.

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Education

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  • i like this. i found an online price and hedge simulator exotic-options-and-hybrids(dot­)com/price_hedge_simulation.ht­ml good stuff.keep it up

  • thank you for all your work put in these videos.

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