Year: 2025
Type: preprint
Abstract: This work analytically characterizes impermanent loss for automated market makers (AMMs) in decentralized markets such as Uniswap or Balancer (CPMM). We derive a static replication formula for the pool's value using a combination of European calls and puts. Furthermore, we establish a result guaranteeing hedging coverage for all final prices within a predefined interval. These theoretical results motivate a numerical example where we illustrate the strangle strategy using real cryptocurrency options data from Deribit, one of the most liquid markets available.
Authors: Gonzalez, Agustin Muñoz, Sequeira, Juan Ignacio, Dembling, Ariel
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W4416419967
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