Dynamic Hedging - Financial Theory - John Geanakoplos - Lecture 20 of 26 - Video-lecture

Video-lecture, Financial Theory

Description: Suppose you have a perfect model of contingent mortgage prepayments, like the one built in the previous lecture. You are willing to bet on your prepayment forecasts, but not on which way interest rates will move. Hedging lets you mitigate the extra risk, so that you only have to rely on being right about what you know. The trouble with hedging is that there are so many things that can happen over the 30 year life of a mortgage.
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