Underhedging

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Revision as of 11:20, 14 August 2013 by imported>Doug Williamson (Spacing 14/8/13)
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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).

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