Financial Theory with John Geanakoplos 21. Dynamic Hedging and Average Life
21. Dynamic Hedging and Average Life Transcript and Lesson Notes
Financial Theory (ECON 251) 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 t
Quick Summary
Financial Theory (ECON 251) 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 t
Key Takeaways
- Review the core idea: Financial Theory (ECON 251) 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 t
- Understand how Bernoulli fits into 21. Dynamic Hedging and Average Life.
- Understand how Arrow fits into 21. Dynamic Hedging and Average Life.
- Understand how utility fits into 21. Dynamic Hedging and Average Life.
- Understand how risk fits into 21. Dynamic Hedging and Average Life.
Key Concepts
Full Transcript
Financial Theory (ECON 251) 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. 00:00 - Chapter 1. Review of Dynamic Hedging 09:15 - Chapter 2. Dynamic Hedging as Marking-to-Market 19:55 - Chapter 3. Dynamic Hedging and Prepayment Models in the Market 30:50 - Chapter 4. Appropriate Hedges against Interest Rate Movements 01:05:15 - Chapter 5. Measuring the Average Life of a Bond Complete course materials are available at the Open Yale Courses website: http://open.yale.edu/courses This course was recorded in Fall 2009.
Lesson FAQs
What is 21. Dynamic Hedging and Average Life about?
Financial Theory (ECON 251) 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 t
What key concepts are covered in this lesson?
The lesson covers Bernoulli, Arrow, utility, risk, diversification.
What should I learn before 21. Dynamic Hedging and Average Life?
Review the previous lessons in Financial Theory with John Geanakoplos, then use the transcript and key concepts on this page to fill any gaps.
How can I practice after this lesson?
Practice by applying the main concepts: Bernoulli, Arrow, utility, risk.
Does this lesson include a transcript?
Yes. The full transcript is visible on this page in indexable HTML sections.
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