Hedge Comparison

Research evidence excerpt

Hedge Comparison

Philip Dobrinov

Credit Derivative Strategy

20-Aug-26

Note: The size of 3M hedges are determined by scaling the premiums spent to $10 MM. To get the expected index levels in a stress scenario, we apply the same historical moves to current spot levels.

Scenario: The Financial Crisis (2008-2009)

Index

Maturity

Structure

Strike

Delta

Price

Notional/Contracts

Premium

Spot

Expected

Payout

P&L

Payout Ratio*

CDX IG

CDX HY

SPX

VIX

18-Nov-26

20-Nov-26

18-Nov-26

Payer

Payer Spread

Payer

Payer Spread

Put

Put Spread

Call

Call Spread

72.50

95.00

60/77.5

103.50

100.50

106/102.5

7225

6750

7650/7025

40.0

70.0

25/55

20%

10%

40%/15%

20%

10%

40%/15%

20%

10%

40%/15%

20%

10%

40%/15%

6.16c

2.70c

6.98c

32.56c

17.30c

42.10c

1.10%

0.58%

1.40%

6.38%

2.96%

10.54%

16,237,396,379

37,029,802,625

14,316,665,391

3,070,913,409

5,781,848,628

2,375,281,962

1,180

2,252

928

105,263

227,272

63,694

10,000,000

9,994,600

9,998,880

9,994,560

9,999,985

9,999,968

9,999,958

51.08

107.89

7,707.98

14.89

158

75

3,688

78

77.57

575,838,764

969,699,914

104,446,561

868,516,470

1,461,768,362

83,134,869

417,347,931

689,527,915

58,000,000

395,473,091

172,044,904

191,082,000

565,838,764

959,699,914

94,446,561

858,516,470

1,451,768,362

73,134,869

407,353,331

679,529,035

48,005,440

385,473,106

162,044,936

181,082,042

57.6

97.0

10.4

86.9

146.2

8.3

41.8

69.0

5.8

39.5

17.2

19.1

Payout Ratios, Financial Crisis

160

CDX HY

4/4/1900

140

Date

120

2-May-08

9-Mar-09

% move

100

Roll Adjusted

IG Spread

HY Px

84.51

262.04

210%

95.60

66.65

-30%

SPX

VIX

1,413.90

676.53

-52%

18.18

80.86

62.68

80

60

4095

95

20

0

CDX IG 20D

CDX IG 10D

CDXIG 40D15D CDX HY 20D

CDX HY 10D CDXHY 40D15D

SPX 20D

SPX 10D

SPX 40D15D

VIX 20D

VIX 10D

VIX 40D15D

Scenario: The Energy Sell-Off (2015-2016)

Index

Maturity

Structure

Strike

Delta

Price

Notional/Contracts

Premium

Spot

Expected

Payout

P&L

Payout Ratio*

CDX IG

CDX HY

SPX

VIX

18-Nov-26

4-Apr-00

18-Nov-26

20-Nov-26

18-Nov-26

Payer

Payer Spread

Payer

Payer Spread

Put

Put Spread

Call

Call Spread

65.00

72.50

60/77.5

105.0

103.5

106/102.5

7475

7225

7650/7025

30.0

40.0

25/55

30%

20%

40%/15%

30%

20%

40%/15%

30%

20%

40%/15%

30%

20%

40%/15%

8.93c

6.16c

6.98c

49.09c

32.56c

42.10c

1.63%

1.10%

1.40%

…