Also found in:DictionaryThesaurusLegalEncyclopedia.Atransactionthat reduces theriskof aninvestment.To reduce theriskof aninvestmentby making anoffsettinginvestment. There are a large number ofhedging strategiesthat one can use. To give an example, one may take along positionon asecurityand thensell shortthe same or a similar security. This means that one willprofit(or at least avoid aloss) no matter which direction the securityspricetakes. Hedging may reduce risk, but it is important to note that it also reduces profit potential.A security transaction that reduces the risk on an already existing investment position. An example is the purchase of a put option in order to offset at least partially the potential losses from owned stock. Although hedges reduce potential losses, they also tend to reduce potential profits. See alsoperfect hedgerisk hedgeshort hedgespecial arbitrage account.A hedge that limits potential losses is also likely to limit potential gains. In May 1997 Georgia entrepreneur and billionaire Ted Turner entered into an arrangement whereby Mr. Turner had the right to sell four million of his Time Warner shares to a brokerage firm at a price of $19.815 per share. At the same time the brokerage firm acquired the right to buy the same four million shares at a price of $30.45. This particular hedge, called a collar, established a minimum and maximum value for four million shares of Time Warner owned by Mr. Turner. In other words, the former owner of the Atlanta Braves, Atlanta Hawks, CNN, and superstation WTBS acquired the right to obtain at least $19.815 per share by agreeing to give up any increase in value above $30.45. Time Warner stock subsequently skyrocketed when America Online acquired the firm at a price nearly triple the $30.45 stipulated in the agreement. Thus, the hedge ended up costing Mr. Turner approximately a quarter of a billion dollars. On a positive note, the four million shares represented less than 4% of Mr. Turners total holdings of Time Warner stock he had acquired when the firm bought his Turner Broadcasting several years earlier.
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Additionally, from the data for year 2012 it can also be concluded that Radiator Companys
for currency was a better option than paying the monthly exchange rate.
Hedging currency in the automotive industry: a manufacturing case study
Given that it is practically impossible to completely eliminate the risk in an option, can we determine a
to minimize a chosen measure of risk under a real world price dynamics?
using the underlying to be effective, hedging portfolios need to be rebalanced frequently.
Theoretical values of the option to be hedged (as well as standard options if used as hedging instruments) are computed based on the calibrated model and then either a delta
is determined based on this risk adjusted valuation.
Robustly hedging variable annuities with guarantees under jump and volatility risks
must have been previously identified and documented by management (nature of the risk or risks being hedged, in accordance with the organizations risk management strategy; amounts and other characteristics of hedged and hedging positions; anticipated and designated period during which hedge accounting will be applied).
Cash flow hedges delay the recognition in net income of all gains and losses on both positions of the
until the cash flows covered by the hedge have been realized.
In both cases, the technique consists in ensuring a match between offsetting gains and losses on
positions in net income for the same periods.
Hedging strategies and GAAP: a marriage made in heaven? Canadas new hedge accounting rules create new ways in which to make sense of hedging activities in financial statements. Make sure you know where it works best
is evaluated at nonoverlapping one-month and three-month horizons.
This results in what is referred to as the selective
The forward-rate adjusted returns associated with the selective
, Mathematical Expression Omitted~, are stated as
A stochastic dominance approach to evaluating foreign exchange hedging strategies
In light of recent scrutiny as to the application of hedge accounting, we are reviewing our accounting treatment of our derivative transactions related to our
to ensure that our financial statements adhere to SFAS 133.
Saxon Capital, Inc. 2005 Fourth Quarter and Year End Earnings Release and Conference Call Delayed
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