of the owned portfolio. Alternatively, and more commonly, they will buy a put on a Stock market index option so as to hedge. In both cases the logic is that the (diversified) portfolio is likely highly correlated with the stock index it is part of; thus if stock prices decline, the larger index will likewise decline, and the derivative holder will profit. Fund managers, or traders, may also wish to hedge a specific stock's price. Here, they may likewise buy a single-stock put, or sell a single-stock future. Alternative strategies may rely on assumed relationships between related stocks, employing, for example, a "Long/short" strategy. Bond portfolios are typically managed via Interest rate immunization or cashflow matching. Immunization is a strategy that ensures that a change in interest rates will not affect the value of a fixed-income portfolio (an increase in rates results in a decreased instrument value). It is often used to ensure that the value of a pension fund's assets (or an asset manager's fund) increase or decrease in an exactly opposite fashion to their liabilities, thus leaving the value of the pension fund's surplus (or firm's equity) unchanged, regardless of changes in the interest rate. Cashflow matching is similarly a process of hedging in which a company or other entity matches its cash outflows - i.e., financial obligations - with its cash inflows over a given time horizon. For derivative portfolios, and positions, the Greeks are a vital risk management tool - as above, these measure sensitivity to a small change in a given underlying parameter, and the portfolio is then rebalanced accordingly by including additional derivatives with offsetting characteristics. See also Bibliography References External links CERA - The Chartered Enterprise Risk Analyst Credential - Society of Actuaries (SOA) Financial Risk Manager Certification Program - Global Association of Risk Professional (GARP) Professional Risk Manager Certification Program - Professional Risk Managers' International Association (PRMIA) Risk Journals Homepage Mathematical science occupations