Financial Derivatives Toolbox

Portfolio Constraints with hedgeslf

The other hedging function, hedgeslf, attempts to minimize portfolio sensitivities such that the rebalanced portfolio maintains a constant value (the rebalanced portfolio is hedged against market moves and is closest to being self-financing). If a self-financing hedge is not found, hedgeslf tries to rebalance a portfolio to minimize sensitivities.

From a least squares systems approach, hedgeslf first attempts to minimize cost in the same way that hedgeopt does. If it cannot solve this problem (a no cost, self-financing hedge is not possible), hedgeslf proceeds to minimize sensitivities like hedgeopt. Thus, the discussion of constraints for hedgeopt is directly applicable to hedgeslf as well.

Example: Under-Determined System

Function Reference