Risk-Based Currency Management
Risk & Reward, 2017, 1st issue, pp. 20-24
7 Pages Posted: 7 Apr 2017
Date Written: March 2, 2017
Dealing with a portfolio’s currency risk is no clear-cut matter. Using a minimum variance hedging strategy, we explore a middle road between full hedging of all currency risks and no hedging at all. Past performance analysis suggests that a minimum variance hedge is often superior to either extreme. Given the quite stable correlation between exchange rates and asset classes, the minimum variance hedge can reduce portfolio risk substantially in many cases.
Keywords: FX, Hedging, Minimum-Variance
JEL Classification: F31, G11
Suggested Citation: Suggested Citation