Frequently, dynamic hedging strategies minimizing risk exposure are not given in closed form, but need to be approximated numerically. This makes it difficult to estimate residual hedging risk, also called basis risk, when only imperfect hedging instruments are at hand. We propose an easy to...

We reveal pitfalls in the hedging of insurance contracts with a minimum return guarantee on the underlying investment, e.g.\ an external mutual fund. We analyze basis risk entailed by hedging the guarantee with a dynamic portfolio of proxy assets for the funds. We also take account of liquidity...

Consider an agent with a forward position of an illiquid asset (e.g. a commodity) that has to be closed before delivery. Suppose that the liquidity of the asset increases as the delivery date approaches. Assume further that the agent has two possibilities for hedging the risk inherent in the...