Dynamic hedging is a risk management strategy that involves continuously adjusting a hedge position as market conditions change, in order to maintain the desired level of risk exposure. This approach allows for flexibility and responsiveness to price movements in the underlying asset, aiming to reduce the impact of market volatility on financial results. It’s particularly important in hedge accounting, as the effectiveness of the hedge must be monitored and managed in real-time to ensure compliance with accounting standards.
congrats on reading the definition of Dynamic Hedging. now let's actually learn it.