Target Weight Mechanism doesn't make delta hedge easier
Risk Management
2026-04-21 v1 Computer Science and Game Theory
Abstract
Chitra et al. (2025) claim that Target Weight Mechanism (TWM) in Perpetual Demand Lending Pools (PDLPs) can lower the delta of the portfolio under certain condition. We prove that their condition is self-contradictory. Furthermore, we prove an impossibility result that no TWM can lower the delta uniformly.
Cite
@article{arxiv.2604.16467,
title = {Target Weight Mechanism doesn't make delta hedge easier},
author = {Ruichao Jiang and Long Wen},
journal= {arXiv preprint arXiv:2604.16467},
year = {2026}
}