Portfolio delta hedging
Portfolio delta hedging adds simulated hedge positions to the selected strategies. MesoSim combines their allocated delta separately for each underlying and checks whether the net delta has crossed your configured boundaries.
In the Portfolio Builder, select one finished backtest, choose Fixed weights, and assign 100%. Enable delta hedging to compare that strategy's hedged and unhedged performance.
Configure the hedge
In Configuration, enable Delta hedging, choose a Re-hedging schedule, and enable the underlyings you want to hedge. Each underlying has its own settings:
| Setting | Purpose |
|---|---|
| Lower adjustment | Trades toward its Target Δ when net delta falls below its Trigger Δ. |
| Upper adjustment | Trades toward its Target Δ when net delta rises above its Trigger Δ. |
| Contract multiplier | Delta contributed by one hedge unit. A smaller multiplier gives finer control over hedge size. |
| Commission | Cost charged for each hedge unit bought or sold. |
| Slippage | Adverse price offset: added to buy prices and subtracted from sell prices. |
You can enable the lower adjustment, the upper adjustment, or both. Triggers describe when to trade; targets describe the delta to move toward. A check at exactly the trigger does not fire: net delta must be below the lower trigger or above the upper trigger.
Hedges use whole units. The selected trade moves net delta closer to the target, but may leave a residual delta when the target cannot be reached with whole units.
Example: hedge outside a delta band
For an illustrative configuration, set:
- Lower Trigger Δ to −100 and its Target Δ to 0.
- Upper Trigger Δ to 100 and its Target Δ to 0.
- Contract multiplier to 50.
At a scheduled check, suppose the allocated strategy delta is 120 and no hedge is held. The upper adjustment fires. Selling two hedge units contributes −100 delta and leaves 20 net delta, closer to the target than either one or three units would be.
At later checks, net delta includes the hedge already held. MesoSim changes that holding as needed instead of creating a new hedge from zero at every check.
Include trading costs
The editor gives multiplier examples of 50 for an /ES-sized unit, 5 for a /MES-sized unit, and 1 for a share-sized unit. Hedge valuation uses the underlying price data supplied by the component backtests; the multiplier sets the unit size.
Slippage cost is:
absolute units traded × slippage × contract multiplier
For two units with a multiplier of 50, slippage of 0.25, and commission of 1.50 per unit, the trade incurs 25 in slippage and 3 in commission. Net hedge PnL includes both costs.
Choose when to check delta
- Daily: once per trading session at the daily portfolio valuation, 15 minutes before the scheduled close, including early closes.
- Weekly: on the selected weekday at the daily valuation. If that day is not a trading session, the check moves to the first session on or after it.
- Custom: every configured number of calendar days, using the first trading session on or after each due date at the daily valuation.
- Intraday: every 5, 15, or 30 minutes, or hourly, during the trading session.
The 5-, 15-, and 30-minute schedules start one interval after the session opens and stop before the close. Hourly checks use whole-hour boundaries after the open and before the close. All times are market-local and account for early-close sessions. The first and final portfolio observations are valuation-only and are not re-hedged.
The hedge schedule is independent of the portfolio rebalance schedule.
Prepare data for intraday hedging
Every included strategy must supply sufficiently frequent backtest data:
| Hedge interval | Required backtest data |
|---|---|
| 5 or 15 minutes | 5-minute data or finer |
| 30 minutes or hourly | 30-minute data or finer |
If the portfolio identifies incompatible runs, configure an Entry, Adjustment, or Exit schedule at the required frequency or finer, rerun those strategies, and replace the portfolio components. See Timing for strategy schedules. Changing an evaluation schedule can also change the strategy's behavior, so review the new backtest before using it.
Older runs may also lack the data required for delta hedging. Follow the message identifying which strategies need to be rerun.
Review hedge performance
After analysis:
- Compare the Portfolio (delta hedged) and Portfolio (unhedged) curves in Overview.
- Inspect Portfolio Greeks by Symbol → Delta to compare the exposures. These charts summarize daily values; use Events to inspect individual intraday hedge actions.
- Open Events → Delta hedging activity for triggers, targets, units traded and held, net delta before and after, execution prices, costs, and hedge PnL.
- Use the Hedged / Unhedged selector in Tearsheet and StatSim to compare both performance series.
This hedge model changes delta; it does not change the option strategies' Gamma, Theta, or Vega. To rebalance delta by changing option legs inside a strategy, see Delta Hedging with Adjustments.