Abstract

https://ssrn.com/abstract=2684498
 


 



Is Hedging Foreign Currency Bids with Options Desirable? An Applied Analysis for Small Firms


David VanderLinden


University of Southern Maine - School of Business

October 31, 2015

JAFR Vol I, 2014

Abstract:     
Companies that submit bids denominated in foreign currency but will not be informed of the winner of the bid for some time are exposed to foreign exchange gains or losses during the bid to award period. This paper explores the use of currency put options to hedge such a bid in euros, and evaluates the desirability of the hedge using a stylized empirical probability distribution as well as simulated data from actual results from 2008-2012. Both approaches indicate that an out-of-the-money hedge is often beneficial, and in particular a 10-delta put (which is the least costly of the most widely options) is recommended from this analysis.

Number of Pages in PDF File: 12


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Date posted: November 1, 2015  

Suggested Citation

VanderLinden, David, Is Hedging Foreign Currency Bids with Options Desirable? An Applied Analysis for Small Firms (October 31, 2015). JAFR Vol I, 2014 . Available at SSRN: https://ssrn.com/abstract=2684498

Contact Information

David VanderLinden (Contact Author)
University of Southern Maine - School of Business ( email )
P.O. Box 9300
Portland, ME 04104
United States
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