Overhedging and RFFV: Difference between pages

From ACT Wiki
(Difference between pages)
Jump to navigationJump to search
imported>Doug Williamson
(Standardise example titles)
 
imported>Doug Williamson
(Create the page. Source: The Treasurer March 2015 page 35.)
 
Line 1: Line 1:
Overhedging is a form of speculation.
Ring-fenced financing vehicle.
 
 
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.
 
The effect of overhedging in this way is to create a new purely speculative position in the derivative instrument.
 
The size of the new speculative position is equal to the excess of the principal amount hedged, over 100%.
 
 
<span style="color:#4B0082">'''Example: Overhedging'''</span>
 
In the case above, the size of the new speculative position is 200% - 100% = 100%.
 
In other words equal in size to the original exposure being hedged.
 
The new speculative position is in the opposite direction to the original exposure.
 
 
== See also ==
* [[Hedging]]
* [[Underhedging]]
* [[MCT]]
 
[[Category:Manage_risks]]
[[Category:Risk_frameworks]]

Revision as of 16:41, 7 March 2015

Ring-fenced financing vehicle.