Title:
Hedging the fx risk: the role of correlation
Authors:
- Agnes Vidovics-Dancs
Published in:
(2024). ECMS 2024, 38th Proceedings
Edited by: Daniel Grzonka, Natalia Rylko, Grazyna Suchacka, Vladimir Mityushev, European Council for Modelling and Simulation.
DOI: http://doi.org/10.7148/2024
ISSN: 2522-2422 (ONLINE)
ISSN: 2522-2414 (PRINT)
ISSN: 2522-2430 (CD-ROM)
ISBN: 978-3-937436-84-5
ISBN: 978-3-937436-83-8 (CD) Communications of the ECMS Volume 38, Issue 1, June 2024, Cracow, Poland June 4th – June 7th, 2024
DOI:
https://doi.org/10.7148/2024-0112
Citation format:
Agnes vidovics-dancs (2024). Hedging the FX risk: the role of correlation, ECMS 2024, Proceedings Edited by: Daniel Grzonka, Natalia Rylko, Grazyna Suchacka, Vladimir Mityushev, European Council for Modelling and Simulation. doi:10.7148/2024-0112
Abstract:
Hedging financial risk is an essential issue but is far from trivial to implement. By continuing a previous study, we analyze an investment where the traditional hedging strategy may lead to a riskier portfolio than the naked position. The basic problem is well-known for portfolio and risk managers: we hedge the foreign exchange risk of a foreign stock investment with the help of a forward position. With some simulations, we show how the correlation between the stock price and the exchange rate can (or should) influence the decision about the forward position’s volume. We emphasize that also regulators should initiate more sophisticated definitions in the field of financial hedging.
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