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Dynamic Hedging in Currency Crisis

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Abstract

Garber and Spencer have argued that dynamic hedging may lead to perverse results when interest rates are used to defend an exchange rate. This paper shows that interest rate changes have little effects on dynamic hedgers when volatility is high.

Suggested Citation

  • Malte Krüger, 1998. "Dynamic Hedging in Currency Crisis," University of Western Ontario, Departmental Research Report Series 9806, University of Western Ontario, Department of Economics.
    • Handle: RePEc:uwo:uwowop:9806
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    File URL: https://ir.lib.uwo.ca/cgi/viewcontent.cgi?article=1327&context=economicsresrpt
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    References listed on IDEAS

    as
    1. Peter M. Garber & Michael G. Spencer, 1995. "Foreign Exchange Hedging and the Interest Rate Defense," IMF Staff Papers, Palgrave Macmillan, vol. 42(3), pages 490-516, September.
    2. Peter M. Garber & Michael G. Spencer, 1996. "Dynamic Hedging and the Interest Rate Defense," NBER Chapters, in: The Microstructure of Foreign Exchange Markets, pages 209-228, National Bureau of Economic Research, Inc.
    3. Jeffrey A. Frankel & Giampaolo Galli & Alberto Giovannini, 1996. "The Microstructure of Foreign Exchange Markets," NBER Books, National Bureau of Economic Research, Inc, number fran96-1, March.
    4. Juan Ayuso & M.P. Jurado & Fernando Restoy, 1994. "Is Exchange Rate Risk Higher in the E.R.M. after the Widening of Fluctuation Bands?," Working Papers 9419, Banco de España.
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    Cited by:

    1. David Burgess & Joel Fried, 1999. "Canadian Retirement Savings Plans and the Foreign Property Rule," Canadian Public Policy, University of Toronto Press, vol. 25(3), pages 395-416, September.

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    More about this item

    Keywords

    Dynamic hedging; central bank intervention; currency crisis;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance

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