Which Currency Hedging Strategy is Best?
State Street Corporate - State Street Associates
Massachusetts Institute of Technology (MIT) - Sloan School of Management
State Street Global Markets
May 13, 2013
MIT Sloan Research Paper No. 5003-13
Informed investors understand that they should hedge at least some of their portfolios’ currency exposure, but the best strategy for doing so remains an open question. We investigate a variety of currency hedging strategies, including linear strategies, non-linear strategies, and combinations thereof, for the purpose of helping investors determine which strategies best meet their objectives.
Number of Pages in PDF File: 37
Keywords: Basket option, Continuous value at risk, Cross hedging, First passage probability, Full-scale optimization, Kinked utility function, Linear hedging strategy, Mahalanobis distance, Non-linear hedging strategy, Turbulence, Within-horizon risk
JEL Classification: C61, F31, G11, G12, G13, G15working papers series
Date posted: May 22, 2013
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