Hedge-strategy objectives are key!
There is a better way . . . to be found in the tools of quantitative finance
A detailed description of quantitative finance based hedging methodology is available under the 'Papers' tab.
- If our aim is to mitigate commodity-cost risk, then defending two competing tolerances - tolerance for upside cost outcomes and hedge‑loss outcomes is necessary because risk is bi-directional.
- Articulating these dual, competing tolerances is the key to a successful program;
- Hedging a fixed percentage, without monitoring risk conditions is literally non-responsive . . . A preselected 50% hedge ratio can constrain costs to 50% of upside exposures, but also implies a willingness to accept hedge losses equal to 50% of downside market movements
There is a better way . . . to be found in the tools of quantitative finance
A detailed description of quantitative finance based hedging methodology is available under the 'Papers' tab.