Hedging Strategies and Financial Risks
Hedging strategies represent basic instrument used toward eliminating financial risk. Increasing volatility of financial markets and their globalization also lead to higher financial risks. These aspects are especially important for transitional and small open economies. The basic goal of the paper is to show the derivation and application possibilities of select hedging strategies. Five basic hedging strategies ? delta hedging, minimum variance, minimum value at risk, maximum expected utility value, and minimum shortfall ? are derived and described. All the strategies are derived for two asset portfolios consisting of risk assets (share, bond, commodity price, and exchange rate) and hedged assets (financial derivative). Another common assumption is that random variables are normally distributed. Examples of exchange rate, interest-rate, equity and commodity-risk hedging are described. Several applications are suitable for small open economies that lack liquid capital market with limited secondary derivative market.
Volume (Year): 54 (2004)
Issue (Month): 1-2 (January)
|Contact details of provider:|| Postal: Opletalova 26, CZ-110 00 Prague|
Phone: +420 2 222112330
Fax: +420 2 22112304
Web page: http://ies.fsv.cuni.cz/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:fau:fauart:v:54:y:2004:i:1-2:p:50-63. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lenka Herrmannova)
If references are entirely missing, you can add them using this form.