Impermanent Loss Hedging in Constant Product AMMs

This repository contains the code and simulations presented in the blog post and paper:
"Impermanent Loss from a Quantitative Perspective: Static Replication and Hedging via Options"

We develop a simple yet powerful framework to model impermanent loss (IL) in constant product automated market makers (CPMMs), such as Uniswap v2. Using Python and Jupyter, we simulate:

• The dynamic value of liquidity provider (LP) positions
• The IL incurred under price movements
• A static hedging strategy based on a long strangle of European options

The goal is to provide DeFi researchers, quant developers, and protocol designers with an educational and adaptable tool for exploring IL mitigation strategies.

📈 Try it live on Google Colab
Open Notebook

📄 Read the full research paper (PDF): Pool_Value_Replication__CPM__and_Impermanent_Loss_Hedging.pdf

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Contents

• hedging_simulation.ipynb – main notebook with simulations
• data/ – placeholder for option price inputs if using real data
• README.md – documentation and references
• colabs - deprecated files and back ups

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License

MIT License

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Authors

• Agustín Muñoz González — @AguuMg
• Juan I. Sequeira
• Ariel Dembling