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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

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Hedging is one of the most important concepts in risk management, yet if you ask five people to define it you are likely to get five different answers.

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

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