Applied risk management series: Optimising commodity hedging programmes

Aeroplane engine

How does a firm design an effective commodity hedging programme? The key to answering this question lies in one’s definition of the term ‘effective’, which can have a very different meaning even to people within the same organisation, depending on their personal views and functional perspectives.

For example, back-office functions rely on prevailing hedge accounting standards to make this determination. In contrast, middle-office personnel in risk management will tend to focus on the programme’s