Exchange Rate Hedging in a Simulation/Optimization Framework

Christian Ullrich ()
Additional contact information
Christian Ullrich: BMW AG

Chapter 17 in Forecasting and Hedging in the Foreign Exchange Markets, 2009, pp 185-188 from Springer

Abstract: Abstract Part III considers another relevant practical problem involving uncertainty about future exchange rate developments: the problem of finding a possibly optimal combination of linear and nonlinear financial instruments in order to hedge foreign exchange transaction risk over a specified planning period. While much research has been done in order to find answers on why multinational firms in reality hedge their exchange rate exposures, newspapers regularly suggest that more research should be directed towards how hedgers can improve their decision making procedures. Hedges are trades designed with the motivation to reduce or eliminate risk which distinguishes them from pure speculation. Still real-world hedging policies often involve a speculative component in terms of exchange rate expectations which may deviate from those implied by derivative prices. For instance, if a hedger believes that the currency is going to move in an unfavorable direction, he may ask about the appropriate strategy in terms of instrument selection. In contrast, if the currency is expected to move favorably, but the hedger is not entirely sure, should he use a different risk management strategy?

Keywords: Exchange Rate; Passive Strategy; Hedge Ratio; Spot Exchange Rate; Exchange Rate Return (search for similar items in EconPapers)
Date: 2009
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:lnechp:978-3-642-00495-7_17

Ordering information: This item can be ordered from
http://www.springer.com/9783642004957

DOI: 10.1007/978-3-642-00495-7_17

Access Statistics for this chapter

More chapters in Lecture Notes in Economics and Mathematical Systems from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().