Pool Value Replication (CPM) and Impermanent Loss Hedging
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arXiv
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| Main Authors: | , , |
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| Format: | Preprint |
| Published: |
2025
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| _version_ | 1866916664634769408 |
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| author | Gonzalez, Agustin Muñoz Sequeira, Juan Ignacio Dembling, Ariel |
| author_facet | Gonzalez, Agustin Muñoz Sequeira, Juan Ignacio Dembling, Ariel |
| contents | This work analytically characterizes impermanent loss for automated market makers (AMMs) in decentralized markets such as Uniswap or Balancer (CPMM). We derive a static replication formula for the pool's value using a combination of European calls and puts. Furthermore, we establish a result guaranteeing hedging coverage for all final prices within a predefined interval. These theoretical results motivate a numerical example where we illustrate the strangle strategy using real cryptocurrency options data from Deribit, one of the most liquid markets available. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2503_21967 |
| institution | arXiv |
| publishDate | 2025 |
| record_format | arxiv |
| spellingShingle | Pool Value Replication (CPM) and Impermanent Loss Hedging Gonzalez, Agustin Muñoz Sequeira, Juan Ignacio Dembling, Ariel Risk Management Mathematical Finance This work analytically characterizes impermanent loss for automated market makers (AMMs) in decentralized markets such as Uniswap or Balancer (CPMM). We derive a static replication formula for the pool's value using a combination of European calls and puts. Furthermore, we establish a result guaranteeing hedging coverage for all final prices within a predefined interval. These theoretical results motivate a numerical example where we illustrate the strangle strategy using real cryptocurrency options data from Deribit, one of the most liquid markets available. |
| title | Pool Value Replication (CPM) and Impermanent Loss Hedging |
| topic | Risk Management Mathematical Finance |
| url | https://arxiv.org/abs/2503.21967 |