| This thesis is an overview of hedging methods from a mathematical perspective. Each chapter begins with an explanation of the usefulness of the hedging method before exploring the theoretical mathematics behind it. The methods explored include Duration, Immunization, Duration and Convexity, Multivariate Duration, using the Greek parameters derived from the Black-Scholes Options Pricing Formula, and Covariance Key-Rate Hedging.;The thesis is divided into four chapters. Chapter one is an introduction to hedging which includes some necessary definitions required as background for the methods described in later chapters. Chapter two describes the various hedging techniques that involve or are derived from Duration. These include duration, duration and convexity, immunization, and multivariate duration. Chapter three focuses on hedging using the six Greek parameters that are derived from the Black-Scholes Options Pricing Formula. Chapter four describes a lesser known method of hedging that was introduced in the mid 1990's. The method is known as Covariance Key-Rate hedging. |
