.png){kind=icon}
Return
The Pre-hedging
.png){kind=icon}
PRE
AI
DOI：10.1287/opre.2024.1011.png)
.png){kind=icon}
Original request for help.png){kind=icon}
Share.png){kind=icon}
Save
Abstract
En
This paper studies a dealer that pre-hedges an anticipated potential trade, and we analyze how this affects the client's overall execution outcome. We show that prehedging can benefit both parties: Improved risk management over an extended horizon enables the dealer to charge reduced spreads that more than offset any adverse impact the pre-hedging activity has on the execution price. However, when a dealer pre-hedges too aggressively, this can be detrimental to the client. Timing uncertainty of the potential trade is an effective control held by the client to mitigate any counterproductive pre-hedging. Our results are robust to a setting where competing dealers simultaneously pre-hedge.
Keywords:
pre-hedging
OTC markets
request for quotes
dealer competition
Journal
O
IF:
2.6
Papers:
97
Citations:
1.5W
Organization
Cited Papers
No cited papers available