Super Hedging

AAA

DEFINITION of 'Super Hedging'

A strategy that hedges positions with a self-financing trading strategy. In an incomplete market, such as options, the cost of such a strategy may prove too high. The idea of super hedging has been studied by academics, however it's a theoretical ideal and is difficult to implement in the real world.

INVESTOPEDIA EXPLAINS 'Super Hedging'

A hedging transaction limits investment risk of an underlying asset by using options or futures. The options or futures are bought in opposing postions to the underlying asset in order to lock in a certain amount of gain.

RELATED TERMS
  1. Hedge

    Making an investment to reduce the risk of adverse price movements ...
  2. Transaction Risk

    The exchange rate risk associated with the time delay between ...
  3. Derivative

    A security whose price is dependent upon or derived from one ...
  4. Over-Hedging

    A hedged position in which the offsetting position is for a greater ...
  5. Hedging Transaction

    A type of transaction that limits investment risk with the use ...
  6. Investment Income Ratio

    The ratio of an insurance company’s net investment income to ...
Related Articles
  1. Investing Basics

    The Barnyard Basics Of Derivatives

    This tale of a fictional chicken farm is a great way to learn how derivatives work in the market.
  2. Options & Futures

    Hedging Basics: What Is A Hedge?

    This strategy is widely misunderstood, but it's not as complicated as you may think.
  3. Options & Futures

    Practical And Affordable Hedging Strategies

    Learn how to find and use the most cost-effective ways to transfer risk.
  4. Options & Futures

    A Beginner's Guide To Hedging

    Learn how investors use strategies to reduce the impact of negative events on investments.
  5. Trading Strategies

    Is using the Donchian channel more risky or more conservative than using Bollinger Bands®?

    Read about differences between Bollinger Bands and Donchian Channels, and learn why the latter are considered to be a riskier trading tool.
  6. Investing

    What are the risks associated with investing in telecommunication stocks

    Read about some of the risks associated with investing in telecommunication stocks, including several that are specific to the telecom industry.
  7. Active Trading Fundamentals

    What is liquidity risk?

    Learn how to distinguish between the two broad types of financial liquidity risk: funding liquidity risk and market liquidity risk.
  8. Active Trading Fundamentals

    What does the gearing ratio say about risk?

    Find out why lenders and investors pay close attention to a firm's gearing ratios, and why both too much and too little borrowing can be risky.
  9. Options & Futures

    What are the differences between divergence and convergence?

    Find out what technical analysts mean when they talk about a market experiencing divergence or convergence and how they affect trading strategies.
  10. Options & Futures

    What are the most common momentum oscillators used in options trading?

    Read about some of the most common technical momentum oscillators that options traders use, and learn why momentum is a critical concept for options trading.

You May Also Like

Hot Definitions
  1. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  2. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  3. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  4. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
  5. Special Administrative Region - SAR

    Unique geographical areas with a high degree of autonomy set up by the People's Republic of China. The Special Administrative ...
  6. Annual Percentage Rate - APR

    The annual rate that is charged for borrowing (or made by investing), expressed as a single percentage number that represents ...
Trading Center