A hedge by any other name
It is one of the most commonly used phrases in risk management parlance, but what exactly is meant by the term ‘hedge’? Here we propose a new definition. By Brett Humphreys
Some say hedging is any transaction that decreases the risk of one’s portfolio. Others argue that simply diversifying a portfolio qualifies as hedging. And then there is the ‘Texas hedge’, where a producer uses financial contracts to increase its exposure to the commodity it produces.
The problem is so extreme that while the US’ Financial
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