Pricing in the gap risk of mini-futures
Mini-futures need to be priced and hedged taking sudden jumps into account
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Valer Zetocha argues here that mini-futures require a model that captures the gap risk. This risk can arise either from jumps in the spot price or from the overnight closed-market period, which removes the possibility of continuous hedging. He shows that crash cliquets are the most relevant traded instruments linked to the jump risk of mini-futures. In the case of open-ended mini futures he argues that the correct approach involves the derivation and solution of a
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