Hybrid Hedger Tuning - Predicates
Predicates are complex parameters that evaluate the proposed hedge to decide whether it should be allowed or not. It can be configured to take into account:
- Minimum VaR reduction - how much a hedge has to reduce total VaR by
- Hedge coverage - does/does not allow the rule to fire based on the current net position of the hedger vs the parent book to allow/avoid overhedging.
- Price time envelope - limits the time at which a hedge trade will be restricted by spread parameters - if the rule hasn't fired after the given period trading is permitted regardless of spread.
- Pull away signal alias - if the chosen signal thinks the market is moving in favour of or against us, it can hold off on trading to wait for a better price.
- Spread quantile - ensures the hedger will only fire if the available spread is tighter than a given percentage of all observed TOB (or given sample quantity) spreads
- Signals - signals in hedging can prevent a rule from placing a hedge trade, if a signal is predicting the market is moving away from us it can allow the hedger to hold off on trading to get a better price at a later time.
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