Information Geometry of Risks and Returns

06/09/2022

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by   Andrei N. Soklakov, et al.

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We often think of hedging and investments as having different, even competing goals. In reality optimal hedging and optimal investments are intimately connected. One person's optimal investment is another's optimal hedge. This follows from a geometric structure formed by probabilistic representations of market views and risk scenarios. Understanding this geometric structure is fundamental to risk recycling (and to product design in general).