Underhedging: Difference between revisions
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Underhedging means hedging an amount less than the total related risk exposure, for example by the use of a derivative instrument with a principal amount of 50% (of the related risk exposure). | Underhedging means hedging an amount less than the total related risk exposure, for example by the use of a derivative instrument with a principal amount of 50% (of the related risk exposure). | ||
The effect of underhedging in this way is to reduce the variability of the net hedged exposure - for example by 50% in this case - but without fixing the whole of the related risk exposure. | The effect of underhedging in this way is to reduce the variability of the net hedged exposure - for example by 50% in this case - but without fixing the whole of the related risk exposure. | ||
== See also == | == See also == | ||
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* [[Hedging]] | * [[Hedging]] | ||
* [[Overhedging]] | * [[Overhedging]] | ||
[[Category:Manage_risks]] | |||
[[Category:Manage_risks]] | |||
[[Category:Manage_risks]] | |||
[[Category:Risk_frameworks]] | |||
Latest revision as of 12:10, 13 August 2014
Underhedging means hedging an amount less than the total related risk exposure, for example by the use of a derivative instrument with a principal amount of 50% (of the related risk exposure).
The effect of underhedging in this way is to reduce the variability of the net hedged exposure - for example by 50% in this case - but without fixing the whole of the related risk exposure.
