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Quantitative Finance · Glossary

What is Hedge monetisation?

Definition 7.3 Strategies II: Volatility, Relative Value, Macro and the Bank Desks · Chapter 7 — Tail Hedging and Long Volatility

Hedge monetisation is the rule for selling a tail hedge that has gained, before its expiry, and replacing it at the new market level: for instance, when the put is worth three times what it cost. It turns a paper gain into cash that can be reinvested, and restores protection near the new spot.

Cboe’s put-protection and collar indices against the S&P 500 in three crashes and over each series’ largest drawdown (all three from 2007 to March 2009), 1986–2026. Monthly puts protect against fast falls, not slow ones. Derived from Cboe’s index histories; the raw series are not redistributed. Data: s2_fetch_protect.
Figure 7.1. Cboe’s put-protection and collar indices against the S&P 500 in three crashes and over each series’ largest drawdown (all three from 2007 to March 2009), 1986–2026. Monthly puts protect against fast falls, not slow ones. Derived from Cboe’s index histories; the raw series are not redistributed. Data: s2_fetch_protect.
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