This paper investigates the possibility of hedging discrete stochastic jumps and their tradeoffs in
guaranteed funds under discrete dynamic hedging. Since a guaranteed fund price process is
composed of diffusion and jump process, its expected rate of return is above the risk-free rate of
interest. When delta dynamic hedging occurs at discrete instants, the rate differential will be
manifested in non-zero expected hedging errors. We employ the dynamic guaranteed fund as our
example, whose exotic fund structure excludes the possibility of static hedge. We derive a pricing
model and develop hedging formulas for discrete dynamic guaranteed funds. We show our
discrete-time delta hedging formulas induce smaller hedging errors than those based on applying
the continuous-time hedging formula of Gerber and Pafumi (2000) at discrete instants.
Nevertheless, this discrete-time model still incurs significant negative expected hedging errors
induced partly by the guarantee jumps. We introduce a gamma-adjusted delta hedging strategy.
The simulation results indicate that the strategy can effectively improve the discrete hedging
performance of dynamic guaranteed funds.