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imported>P.F.cowdell@shu.ac.uk |
imported>Doug Williamson |
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| Overhedging is a form of speculation.
| | Primary Loss Absorbing Capital. |
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| It means intentionally hedging an amount GREATER THAN the total related risk exposure, for example by the use of a derivative instrument with a principal amount of 200% of the related risk exposure.
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| The effect of overhedging in this way is to create a new purely speculative position in the derivative instrument.
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| The size of the new speculative position is equal to the excess of the principal amount hedged, over 100%.
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| For example in this case the size of the new speculative position is 200% - 100% = 100%.
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| In other words equal in size to the original exposure being hedged.
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| The new speculative position is in the opposite direction to the original exposure.
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| | == See also == |
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| == See also ==
| | *[[Capital adequacy]] |
| * [[Hedging]] | |
| * [[Underhedging]]
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| [[Category:Commodity_Risk]] | | [[Category:Regulation_and_Law]] |
| [[Category:FX_Risk]]
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| [[Category:Interest_Rate_Risk]]
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Revision as of 18:30, 12 October 2013
Primary Loss Absorbing Capital.
See also
