Being exposed to financial market price risk is an omnipresent aspect of investing. This includes the risk of capital\nlosses when investing in the stock or bond market or the risk of currency fluctuations when investing abroad. In this\narticle, we compare symmetric and asymmetric hedging approaches. We argue that asymmetric hedging is the\nbetter choice for most investors. We discuss active hedging based on trend-following models and suggest a passive\noption-based strategy to benchmark them. Here we find that trend-following models often are superior to the optionbased\nstrategy. Finally, we identify three market characteristics, which may have a significant impact on the\noutperformance of trend-following models over passive option-based hedging strategies: the relationship between\nthe historical and implied volatility, the occurrence of large price movements and the presence of high short-term\nnoise in the market.
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