Protecting against Loss: <i>Protective Put Strategies</i><i>versus Stop-Loss Strategies</i>

McKeon, Ryan; Svetina, Marko

doi:10.3905/joi.2017.26.3.065

Cited by 3 publications

(2 citation statements)

References 6 publications

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“…We conclude that setting the G3M's weight for the risky asset to (27) replicates a protective put on the risky asset with strike K and expiry T . Using the same procedure, we can show that an LP can replicate a covered call, which consists of a long position in an asset alongside a short position in a call option written on the same asset.…”

Section: Payoff Targeting and Replicationmentioning

confidence: 87%

Liquidity Provider Returns in Geometric Mean Markets

Evans¹

2020

Preprint

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Geometric mean market makers (G3Ms), such as Uniswap and Balancer, comprise a popular class of automated market makers (AMMs) defined by the following rule: the reserves of the AMM before and after each trade must have the same (weighted) geometric mean. This paper extends several results known for constant-weight G3Ms to the general case of G3Ms with time-varying and potentially stochastic weights. These results include the returns and no-arbitrage prices of liquidity pool (LP) shares that investors receive for supplying liquidity to G3Ms. Using these expressions, we show how to create G3Ms whose LP shares replicate the payoffs of financial derivatives. The resulting hedges are model-independent and exact for derivative contracts whose payoff functions satisfy an elasticity constraint. These strategies allow LP shares to replicate various trading strategies and financial contracts, including standard options. G3Ms are thus shown to be capable of recreating a variety of active trading strategies through passive positions in LP shares.

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Section: Payoff Targeting and Replicationmentioning

confidence: 87%

Liquidity Provider Returns in Geometric Mean Markets

Evans¹

2020

Preprint

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“…Example (Protective put): A protective put [27] is a popular risk-management strategy wherein an investor buys an asset alongside a put option on the same asset. In exchange for the option premium, the strategy allows the investor to profit from price appreciation while being protected from losses.…”

Section: Payoff Targeting and Replicationmentioning

confidence: 99%

Liquidity Provider Returns in Geometric Mean Markets

Evans¹

2021

Cryptoeconomic Systems

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Geometric mean market makers (G Ms), such as Uniswap and Balancer, comprise a popular class of automated market makers (AMMs) defined by the following rule: the reserves of the AMM before and after each trade must have the same (weighted) geometric mean. This paper extends several results known for constant-weight G Ms to the general case of G Ms with time-varying and potentially stochastic weights. These results include the returns and no-arbitrage prices of liquidity pool (LP) shares that investors receive for supplying liquidity to G Ms. Using these expressions, we show how to create G Ms whose LP shares replicate the payoffs of financial derivatives. The resulting hedges are model-independent and exact for derivative contracts whose payoff functions satisfy an elasticity constraint. These strategies allow LP shares to replicate various trading strategies and financial contracts, including standard options. G Ms are thus shown to be capable of recreating a variety of active trading strategies through passive positions in LP shares. ↩ 29. Mkaouar, F., & Prigent, J.-L. ( ). Constant proportion portfolio insurance under tolerance and transaction costs.

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Which is Worse: Heavy Tails or Volatility Clusters?

Traut

Schadner

2023

SSRN Journal

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Protecting against Loss: Protective Put Strategiesversus Stop-Loss Strategies

Cited by 3 publications

References 6 publications

Liquidity Provider Returns in Geometric Mean Markets

Liquidity Provider Returns in Geometric Mean Markets

Liquidity Provider Returns in Geometric Mean Markets

Which is Worse: Heavy Tails or Volatility Clusters?

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