Dynamic Hedging in Financial Theory - Lecture 20

Explore the concept of dynamic hedging in this 73-minute lecture from Yale University's Financial Theory course. Delve into the principles of mitigating risk in financial markets, particularly in mortgage prepayments and sports betting scenarios. Learn how to protect against multiple contingencies over time by adjusting hedges annually. Examine the fundamentals of hedging, understand how it generates profit, and discover its applications in the bond market. Through practical examples like World Series betting, gain insights into maintaining profits from dynamic hedging strategies. This comprehensive lecture provides a thorough understanding of dynamic hedging techniques and their importance in financial decision-making.

odds on individual games with other bookies. A naive fan is willing to bet on the Dodgers winning the whole Series at even odds. You have a 71% chance of winning a bet against the fan, but bad luck can cause you to lose anyway. What bets on individual games should you make with the bookies to lock in your expected profit from betting against the fan on the whole Series?
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- Chapter 1. Fundamentals of Hedging
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- Chapter 2. The Principle of Dynamic Hedging
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- Chapter 3. How Does Hedging Generate Profit?
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- Chapter 4. Maintaining Profits from Dynamic Hedging
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- Chapter 5. Dynamic Hedging in the Bond Market
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- Chapter 6. Conclusion
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