An Introduction to Advanced Auto DDH

I. Similarities and differences Between Auto DDH and Advanced Auto DDH

1. A comparison of interfaces

Basic Auto DDH
Advanced Auto DDH

2. Whether dollar-based hedging is supported

3. Selection of hedging contracts

4. Selection of parameters

  • - If the current Delta is -2 BTC, then the Positive Deviation Delta is 1 BTC and the Negative Deviation Delta is 0.
  • - If the current Delta is -4 BTC, then the Negative Deviation Delta is 1 BTC and the Positive Deviation Delta is 0.
  • If you want the direction to be strictly neutral, put 0 here.
  • If you want the overall Delta position to be long, e.g. 5 BTC long, put 5 here.
  • If you want the overall Delta position to be short, e.g. 3 BTC short, put -3 here (i.e. minus 3).
  • A long hedge is triggered when the Delta Target< total position Delta and the Positive Deviation Threshold exceeds the Positive Delta Threshold.
  • A short hedge is triggered when the Delta Target > total position Delta and the Negative Deviation Threshold exceeds the Negative Delta Threshold.
  • A hedging ratio of less than 100% means that the hedged amount is less than the Deviation Delta, and the minimum ratio needs to be greater than 0.
  • A hedging ratio of more than 100% means that the hedged amount is greater than the Deviation Delta, and the maximum ratio should be no more than 150%.

II. Cases

Case 1: A hedging ratio of 100%

  • When the total Delta rises to -2฿, the Positive Deviation Delta is 1฿, triggering the Positive Delta Threshold, and the long contract is hedged once. The total Delta returns to the Delta Target of -3฿ after the hedge is completed.
  • When the total Delta drops to -3.5฿, the Negative Deviation Delta is 0.5฿, triggering the Negative Delta Threshold, and the short contract is hedged once. The total Delta also returns to the Delta Target of -3฿ after the hedge is completed.

Case 2: A hedging ratio of 50%

  • When the total Delta rises to -2฿, the Positive Deviation Delta is 1฿, triggering the Positive Delta Threshold, and the long contract is hedged once. The total Delta becomes -2.5฿ after the hedge is completed.
  • When the total Delta drops to -3.5฿, the Negative Deviation Delta is 0.5฿, triggering the Negative Delta Threshold, and the short contract is hedged once. The total Delta becomes -3.35฿ after the hedge is completed.

Case 3: A hedging ratio of 150%

  • When the total Delta rises to -2฿, the Positive Deviation Delta is 1฿, triggering the Positive Delta Threshold, and the long contract is hedged once. The total Delta becomes -3.5฿ after the first over-hedge is completed. The Negative Deviation Delta now is 0.5฿, triggering Negative Delta Threshold, and the short contract is hedge once. After the second over-hedge is completed, the total Delta becomes -2.75฿.
  • When the total Delta drops to -3.5฿, the Negative Deviation Delta is 0.5฿, triggering the Negative Delta Threshold, and the short contract is hedged once. The total Delta becomes -2.75฿ after the hedge is completed.

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