 Hedging Strategies and Financial RisksCzech Journal of Economics and Finance (Finance a uver), 2004, vol. 54, issue 1-2, 50-63 Abstract: 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. Keywords: hedging; delta hedging; variance minimization; value at risk minimization; expected utility maximization; shortfall minimization; financial derivative (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:fau:fauart:v:54:y:2004:i:1-2:p:50-63 Access Statistics for this article More articles in Czech Journal of Economics and Finance (Finance a uver) from Charles University Prague, Faculty of Social Sciences Contact information at EDIRC. |
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