Gap Hedging

Definition:

An asset-liability corporate hedge based on net assets, or the amount of a company’s shareholders’ equity. Less sophisticated than placing one hedge on the total assets of the company, and another on the total liabilities, gap hedging is the practice of simply hedging the net of the two, or owners’ equity. Assumes the volatility of assets and the volatility of liabilities are equal.

Investing Essentials


Copyright © 2011 Campbell R. Harvey, Professor of Finance, Fuqua School of Business at Duke University

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