Replica del valor de un pool (CPM) y hedging de perdidas impermanentes
Agust\'in Mu\~noz Gonz\'alez, Juan I. Sequeira y Ariel Dembling
TL;DR
This paper provides an analytical characterization of impermanent loss in decentralized exchange pools, offering a static replication formula to hedge against price fluctuations within a certain range.
Contribution
It introduces a theoretical static replication formula for pool value, enabling coverage of impermanent loss within a predefined price range.
Findings
Derived a static replication formula for pool value.
Guaranteed coverage for price ranges within the model.
Applicable to decentralized exchange pools like Uniswap and Balancer.
Abstract
This article analytically characterizes the impermanent loss for automatic market makers in decentralized exchanges such as Uniswap or Balancer (CPMM). We present a theoretical static replication formula for the pool value using a combination of European calls and puts. We will formulate a result to guarantee coverage for any final price that falls within a predefined range.
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