Define the Term “Perfect Hedge.”
A perfect hedge is a risk management strategy that completely eliminates the risk associated with an asset or liability. This is achieved when the gain or loss on the hedged asset is exactly offset by the loss or gain on the hedging instrument (the derivative).
In reality, achieving a perfect hedge is rare due to basis risk and transaction costs.
Glossar
Perfect Hedge
Calibration ⎊ A perfect hedge, within cryptocurrency derivatives, represents a dynamic positioning strategy aiming for zero delta sensitivity to underlying asset price movements.
Achieving a Perfect Hedge
Objective ⎊ A perfect hedge represents the theoretical ideal in risk management where a derivative position precisely offsets the price fluctuations of an underlying asset, resulting in zero net exposure.